Reading US Economic Tea Leaves
Thursday, the BLS announced first-time unemployment applications fell to their lowest levels in nearly three-and-a-half years. Initial jobless claims fell 19,000 to a seasonally adjusted 366,000 last week, beating forecasts for 390,000 claims. We caution not to read too far into weekly data, which can often be volatile. However, this latest print continues a trend of reports showing labor market improvement.
Meanwhile, lower consumer goods production in November led to an unexpected pullback in US industrial production (IP). More specifically, auto production fell (-2.7% m/m) following an unusually strong gain in October, and home electronics (-2.0% m/m) production slumped. However, given recent month-to-month volatility in IP, this negative release isn’t necessarily too concerning. One month’s data point does not make a trend. In fact, forward-looking production indicators—the New York and Philadelphia Manufacturing surveys, which also reported Thursday—showed sharp reacceleration in December, suggesting continued expansion and a likely rebound from the aforementioned negative November IP post.
Here We Eurozone Again…
In its final offering this year, Spain successfully auctioned €6 billion of debt—nearly twice the amount it had initially planned. Yields were mixed—benchmark 10-year debt yields clocked in at 5.545% relative to 5.433% in October, although 5-year bonds sold at rates over 1 percentage point lower than the previous auction in December. Either way, nowhere near disastrous levels. As discussed in our recent research analysis, Spain likely prefers lower yields, but rolling over debt at these rate levels or even a bit higher shouldn’t prove terribly problematic at this point.
Third Time’s a Charm
The US government narrowly avoided shutdown Thursday night as congressional leaders agreed to a new spending bill that keeps the government financed through the fiscal year—September 30, 2012.
As seems to be a congressional norm of late, roadblocks to the deal hinged on taxes: Debate on continuing temporary payroll tax cuts (set to expire at year end) and a proposed tax on folks earning $1 million or more—and those weren’t resolved in Thursday’s deal. Keeping with what’s becoming Congress’s norm (and a move lawmakers have seemingly perfected this year), lawmakers reached a short-term solution at the last minute, kicking the payroll-tax-cut can a bit further down the road. It now seems likely the tax cuts will receive a temporary reprieve, followed by continued debate on the subject well into 2012.
But even if the government had shut down, it might not have been as bad as many might think. There could certainly have been political fallout, but the last time the US government did shut down (in 1995), there was little economic or capital markets fallout. In fact, 1995 was a robust year all around. Plus, we rather doubt we’d shut down Belgium-style, a nation that went 541 days without a government. (And Belgium’s lack of a government didn’t have a huge economic price tag.) But for now, it seems to be not-so-disaster averted.
The Smell of West Texas Intermediate in the Morning
To be fair, government (in general) does occasionally take some positive action. Case in point Wednesday, when the oil and gas industry got a boost after federal officials released new lease blocks for energy exploration in the Gulf of Mexico—the first offering since April 2010’s Macando oil spill. For the government’s part, the lucrative leases raised nearly $337.6 million. Following the Macondo disaster and the drilling moratorium, a permanent (and negative) regulatory backlash was possible. And yes, new regulations have been added, and a number of loopholes have been closed in an effort to reduce risk of another disaster. At this point, drilling activity is getting closer to pre-accident levels—with tighter regulation.
Perhaps next the government can inspire itself to approve the much-debated Keystone XL pipeline. Something to pencil in on Santa’s list.