Morning Economic News - December 12, 2008

Commentary and Overnight Trading

Thursday's economic reports were all about tough to decipher mixed news, which may explain how the US stock market held on for a good part of the day only to end down significantly in late afternoon. Earlier in the week, there was plenty of mixed news in real estate. That was followed up with a mixed set of reports on international trade. The trade deficit was up, which would normally be an indicator that US consumer demand was returning, but this time around it meant that both exports and imports had dropped. Since I focus mainly on total trade volume, this is a bad sign, but it can't be taken in a vacuum either. The Import Export Price Indexes also released Thursday showed a substanital drop in prices for both imports and exports in the 3-6% range. If you look at the trade figures in constant prices, trade volume actually expanded, unfortunately the deflation is itself a bad sign. Thursday was no day for one-handed economists.

Markets abhor an information vacuum and things are looking down for the open Friday, with US stock market futures down 3.5% in overnight trading and both the Nikkei and Hang Seng indexes down more than 5.5%. Oil is also down 4.5% after what may have been a too strong rise on news of OPEC cuts. The US dollar is up strongly against the euro, pound and Canadian dollar, down even more strongly against the yen.

Yesterday's Economic Reports

CASH Index - December 2008

• CASH Index Reading: 15.3


• Monthly Change: Down 19.4


• Expectations Index: -21.2


• Expectations Index Change: Down 44.5

Import Export Price Indexes - November 2008

• Import Prices: Down 6.7%


• Non-petroleum Import Prices: Down 1.8%


• Export Prices: Down 3.2%

International Trade (US) - October 2008

• Exports Monthly Change: Down $3.4 billion


• Exports Monthly Change: Down $2.7 billion


• Monthly Change: Up $0.6 billion

Jobless Claims - December 11, 2008

• Initial Claims: 573,000


• Change from Last Week: Up 58,000


• 4-Week Moving Average: 540,500

Money Supply - December 11, 2008

• M1 Seasonally Adjusted Prior Month: $1522.5 billion


• M1 Annual Change (Unadjusted): Up $157.5 billion


• M2 Seasonally Adjusted Prior Month: $7934.0 billion


• M2 Annual Change (Unadjusted): Up $569.8 billion

Mortgage rates drop, housing news mixed this week

This week brought more muddled news for the housing market. Both
Freddie Mac and the Mortgage Bankers Association reported drops in
Fixed Rate Mortgage (FRM) rates and increases in Adjustable Rate
Mortgage (ARM) rates this week. Last Friday, the Mortgage Bankers
Assocation reported mortgage delinquency rates at an all time high, two
days after reporting an all time increase in mortgage applications;
this week, the MBA reported a small drop in mortgage applications.

Spanish economy takes a nosedive

Spain’s economy dropped hard in October after holding on admirably in August and September. The Leading Index, which had risen 0.4% combined in the previous two months,
fell 1.2% in October and the Coincident Index fell 0.3%. The drop was
broadly based with only 1 leading indicator and 1 coincident indicator
improving.

What I'm Reading

Debt Shows First Drop as Slump Squeezes Consumers

The U.S. economy is deteriorating more rapidly than
expected, indicating the recession will be deeper and longer than
feared. Economists in a WSJ survey expect the decline in GDP to
continue into next year.

Fed's Assets Top $2 Trillion

U.S. financial institutions continued to make extensive use
of the Fed's growing list of credit facilities, pushing the Fed's
balance sheet well past $2 trillion.

Household Net Worth in U.S. Drops Most on Record as Stocks, Homes Tumble U.S. household wealth fell in the
third quarter by the most on record as property values and stock
prices tumbled, highlighting the tattered state of consumer
finances even before the most recent slump in lending.

India's Industrial Production Dropped in October for First Time Since 1993 India’s industrial production
unexpectedly fell for the first time in 15 years, placing
pressure on policy makers to add to interest rate and tax cuts
to shield the weakening economy from a global recession.

U.S. Initial Unemployment Claims Soar to 26-Year High as Recession Deepens The number of Americans filing first-
time claims for unemployment benefits surged more than forecast
last week to a 26-year high, a sign companies are stepping up
firings as the recession deepens.

South Korea's Economy to Grow at Slowest in 11 Years, Central Bank Says South Korea’s economy will expand at
the slowest pace in 11 years in 2009 as the deepening global
recession cools demand at home and abroad, the central bank said.

South Korea, China, Japan Agree on $48 Billion in Currency Swaps Accords South Korea agreed on bilateral
currency swap accords with Japan and China in an effort to ensure
financial stability in Asia.

Japanese Consumer Sentiment Falls to Record Low as Companies Fire Workers Japan’s consumers became the most
pessimistic in at least 26 years, indicating their weaker
spending may deepen the recession.

China Retail-Sales Growth Slows to Weakest in 9 Months as Confidence Dips China’s retail sales grew at the
slowest pace in nine months as the economy and inflation cooled
and the global financial crisis damped consumer confidence.

ECB's Weber Cautions Against Reducing Key Interest Rate Below 2 Percent European Central Bank council member
Axel Weber cautioned against reducing interest rates below 2
percent, becoming the latest ECB policy maker to signal the bank
may be nearing the end of its rate-cutting cycle.

Swiss Central Bank Cuts Benchmark Interest Rate to 0.5%: Table of the Day The following table details the
changes in the Swiss National Bank’s 3-month LIBOR target
rate:

Japan consumer sentiment at record low in Nov

Jobless claims hit 26-year high, exports tumble