Feb 4, 2011

Big Drop in Unemployment Rate

February 4, 2011

Equity markets are opening with a slight positive bid this morning after a confusing employment report this morning. The unemployment rate unexpectedly fell from 9.4% to 9.0%, yet nonfarm payrolls increased by only 36K versus an expected increase of 146K. Manufacturing payrolls increased by 49K versus an expected increase of 10K, but private payrolls overall only increased by 50K versus and expected increase of 145K. Weather certainly had some impact on these reports, the revisions next month will be interesting. The drop in the unemployment rate can be directly attributed to a magical BLS adjustment to the size of the labor force, lowering it by 504K.

The retail comp report for January was very strong yesterday in spite of the weather. A list of 25 specialty retailers that I track posted an increase of 2.6% vs. a consensus of 2.1%, with 16 of the 26 exceeding estimates.

Chairman Bernanke said yesterday that the US central bank’s expansionist monetary policy cannot be blamed for a rapid increase in food costs, which has triggered unrest in many poor countries. He stated those countries have all the tools they need to address excess demand, hinting that they should let their currencies appreciate. In the same speech (I’m not sure why, but I kept finding myself watching the Q&A session) he went way off topic and began lecturing lawmakers on the perils of not raising the debt ceiling. So much for Fed independence.

In an about face from comments made two days ago, ECB President Trichet said that a rate increase in the short term is unlikely and that increasing commodity prices have not resulted in significant, lasting inflation.

The Economist is reporting that after analyzing CBO and Federal Reserve data it is apparent that the US is on track towards full employment. “With QE2 in place, American unemployment is likely to be between 6% and 7% in 2012.”

A lawsuit was filed claiming that the Bank of New York Mellon overcharged Virginia government pension funds by $20 million + by manipulating F-X trades.

BP announced they would be selling their California based refining and retail assets which were formerly owned by ARCO. Chevron is the only other major refiner in California, but may be precluded from buying the Carson based refinery due to antitrust concerns. California typically has higher priced gas than the rest of the country due to a required special blend that is only made by local refineries (and of course higher per gallon taxes).

Have a great Super Bowl weekend.


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