60757 Daily Brief Economics and Financial Market Commentary October 5, 2007 12:09 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 our intranet website: http://GEM or for external users: www.worldbank.org/gem U.S. jobs growth above expectations in September. In an upside surprise, U.S. employers bucked adverse trends in finance, and signs of slowing economic growth, to take-on 110,000 net new employees during September—close to the consensus view of analysts [see Daily chart at http://GEM]. But also key, an initially-reported drop of 4,000 payroll slots in August was revised dramatically to a pick-up of 89,000, wiping out the first noted decline in jobs for some four years. Broader revisions added 118,000 workers to payrolls previously reported for July and August, with most coming from government, reflecting on-take of teachers for the new school year (technically, with difficulties related to changes in school schedules). Broadly, service industries including healthcare, added 143,000 workers last month, more-than offsetting declines “elsewhere”. The unemployment rate inched up from 4.6-to 4.7% in September as departures from the labor force influenced the rate. On a bright note, wages increased 4.1% in September (y/y), the fastest gain since February. In perspective, job growth has accrued to 1.1 million positions over 2007 to date, contrasted with 1.7 million jobs during the like period of 2006; 2.3 million jobs were generated in 2006 and 2.5 million in 2005. Job losses “elsewhere”—in sectors tied directly-or indirectly to the recession in housing—are being hit hard. Retailers shed 5,200 positions in the month; factory payrolls dropped 18,000 in the wake of a 45,000 decline a month earlier, and employment among builders dropped 14,000 after declining a sharp 22,000 in August. Firings at mortgage and finance companies are also adding to the dole queues. “The labor market is bending, but not breaking,” notes Michael Feroli of JPMorgan-Chase, New York. “You still have some pretty good wage growth that should be good for consumer spending.” Food-cost inflation on the rise across many emerging markets. Russia’s consumer prices increased by a more-than-expected 0.8% in September (m/m) compared with 0.1% in August, led by sharp gains in sunflower oil, dairy and other food products. For the first 9 months of 2007, consumer prices increased 7.5% contrasted with 7.2% a year earlier. Georgia’s inflation picked-up to 9% in September (y/y) from 7.7% in August, as prices advanced for food, non-alcoholic beverages, and fuels. And Estonia’s inflation accelerated to a 9-year high 7.2% in September (y/y) from 5.7% in August, on higher food, transport and school- related costs. In Asia, Taiwan’s inflation jumped to a 2-year high 3.1% in September (y/y) from 1.6% in August, as food suppliers raised prices to pass on record costs for wheat-, oil and other commodities. And India’s inflation unexpectedly accelerated for the first time in 6 weeks, as prices for steel, chemicals and other manufactured products increased. Wholesale prices increased 3.42% in the week ended September 22. The Philippine’s consumer price index increased 2.7% in September (y/y) up from 2.4% in August, as the cost of food, beverages and tobacco gained 3.5% from a year earlier, up from 2.5% in August. Among emerging markets...in Latin America, Chile’s GDP grew a weaker-than- expected 4.5% in August (y/y) from 4% in July, below long-term trend growth of 5-5.5%, due to lower output of power and mining. During July-August, activity was adversely affected by substantial energy shortages derived from restrictions on natural gas exports imposed by Argentina, a major strike affecting mining output, and a decline in energy production (a reflection of low water levels at main reservoirs and gas shortages). Peru’s Central Bank left the reference interest rate unchanged at 5% in its monthly monetary policy meeting held yesterday. The Central Bank continues to see the recent inflation spike (which took headline inflation to 3% in the year to September, the upper bound of the target range) as transitory, driven by increases in international food prices; and the Bank expects inflation to converge o the 2% target over coming months. In its quarterly report, Brazil’s central bank said it expects inflation of 4% during 2007 and 4.2% in 2008, compared to earlier estimates of 3.5% and 4.1%. In East Asia, Vietnam’s economic growth expanded 8.2% during the third quarter of 2007 (y/y) up from 7.8% in the like period of 2006. The country has benefited from accession to the WTO in January, which freed it from U.S. textile quotas and led to a surge in overseas investment. Industry and construction—which accounts for 42% of GDP—grew 10.2%, as processing industries expanded 12.5%. Garments passed petroleum to become Vietnam’s top export in the first 3 quarters of the year, jumping 32%. And service-related industries, which make up 38% of GDP, grew 8.5%, with hotel and restaurant trade up 12.7%. Agriculture, fisheries and forestry (20% of GDP) rose 3%, led by a 9% jump in fisheries. Hong Kong’s export growth cooled to the slowest in five months during August, advancing 7.5% (y/y) contrasted with 8.6% the previous month. Meanwhile imports increased by 9% down from 9.8% the previous month. South Korean consumers became the most optimistic in five years in the third quarter of 2007, pointing to stronger consumer spending in coming months. The Kospi index increased to 112 from 108, underpinned by gains in the equity market. In China, profits at industrial companies jumped 37% in the first eight months of the year (y/y) to 1.6 trillion yuan ($213 billion) as sales jumped 27.4% to 24.5 trillion. The surge in profits came as industrial output gained 18.4% in the first eight months of the year. And Thailand’s Finance Ministry boosted the low-end of its economic growth projection for 2007 to 4.5%, due to improving export performance and recovery in domestic consumption. In Central and Eastern Europe, Romania’s industrial output and sales growth eased in August to 4.5% from 7.1% in July (y/y) as drought lowered electricity production. Electricity generation fell 2.3%, and growth in manufacturing industries slowed to an annual 4.6% pace from 8.1% in July. Unemployment in Hungary dropped to 7.2% in the June-August period, down from 7.4% during the same period last year, despite a retrenchment in government jobs that aims to rein-in the fiscal deficit. In the Middle East and North Africa, Saudi Arabia’s economic growth registered 4.3% in 2006 according to the Kingdom’s Central Bank, while its current account surplus was an impressive 27% of GDP, bolstered by high oil prices. In Sub-Saharan Africa, South Africa’s trade deficit eased to 5.1 billion rand ($742 million) in August from 9.4 billion in July, as the weaker currency boosted exports and lower oil prices reduced the oil bill. Meanwhile, PPI inflation inched down to 9.4% in August (y/y) from 10.3% the previous month adding to evidence that a slowdown in the economy is underway. Prices of imported goods gained 9.7% as the rand depreciated, while prices of locally produced goods gained 9.3% compared to 10.6 % the previous month. ***************************************************** The Daily Brief is a summary of economic news items for Bank staff whose responsibilities require that they stay abreast of changes in global markets. The views expressed here are those of the various authors and do not necessarily reflect those of the World Bank Group's Executive Directors or the countries they represent. The content is subject to copyright and is not for quotation outside of the World Bank. The Prospects Group of the World Bank is pleased to share this content with GEM subscribers, under the terms and conditions of use agreed upon login (at www.worldbank.org/gem) to the extranet GEM site. Feedback and requests to be added to or dropped from the distribution list, may be sent to eriordan@worldbank.org.