Morning Economic News - December 2, 2008

A little reported but important factor driving yesterday's slaughter on Wall Street was bad news from China. While there was plenty of reporting on a drop in the US Purchasing Managers Index, much less attention was paid to the fact that the same index for China, perhaps the second most important engine of global growth, also dropped sharply. The message from the stock market was clear - there needs to be a trend of solid good news on economic fundamentals for the roller coaster to stop and the market may yet have more bottoms to test when the news is bad. (Fundamentally, Dow 6500-7000 would represent such a cheap market that major players would have to look seriously at trading in the safest assets - Treasury securities and the highest rated investment grade bonds - for stocks.)

Overnight Asian stocks took a serious beating with the Hang Seng down almost 5% and the Nikkei down more than 6%. US stock futures are up about 1% at this hour [5:19 AM Eastern]. The dollar is down against the yen, euro and Canadian dollar, up against the pound. Oil prices have added another 2.5% drop to yesterday's 9.46% drop to put the NYMEX futures contract at $48.03/barrel.

Construction Spending - October 2008

• Total Construction Spending: $1,072.6 billion


• Monthly Change: Down 1.2%


• Year-to-year Change: Down 4.7%

Manufacturing Report on Business - November 2008

• Purchasing Managers Index (PMI): 36.2


• 50+ represents growing economic conditions


• Monthly Change: down 2.7

Trouble in China

Over dinner last week, economic Nobelist Robert Mundell, who advises
the Bank of China and travels there every other month, told me the
Chinese economy is in bad shape. As a bulwark for the global economy,
the China card is fast turning unreliable. Not only are stocks falling
everywhere else in response to this disappointing China news, but
commodity prices like palladium, silver, gasoline, oil, and gold are
all plummeting today. I’ve only seen one news story that reported on
this China economic decline, but I’m convinced it’s the main factor
behind the U.S. stock drop.

Bad Economy Could Cause China Crackup

Let's remember that China a) has been -- along with America -- one of
the primary engines of global economic growth as well as buy of U.S.
bond...

China Is `Heart of Global Slowdown' as Property Slump Stalls Driver of GDP House prices in Shanghai, Shenzhen and
Guangzhou are plunging, and the global economy may grind almost
to a halt next year because of it.

Fed Signals Action As Slump Drags On

The U.S. recession began last December, the National Bureau
of Economic Research said. Bernanke cited actions the Fed is
considering.

Paulson: New TARP Ideas Mulled

Paulson reiterated that the Treasury Department is still
examining new ways to stabilize financial markets, stem foreclosures,
and boost the economy.

'Bernanke-san' Signals Fed Shift, Evoking Bank of Japan's Zero-Rate Policy Federal Reserve Chairman Ben S.
Bernanke signaled he’s ready to dig deeper into the central
bank’s toolkit after cutting interest rates almost as much as he
can, opening the door to a shift by policy makers this month.

Australia Cuts Rates One Percentage Point; RBA Says Policy `Expansionary' Australia’s central bank cut its
benchmark interest rate by one percentage point, extending the
biggest round of reductions since the nation was last in a
recession in 1991.

Bank of Japan Accepts More Bonds as Collateral, Keeps Key Rate Unchanged The Bank of Japan will accept lower-
grade corporate bonds as collateral for loans to banks to help
businesses get access to funds as the country’s recession deepens.

`Great Recession' May Just Be Starting as Job Losses Mount, Credit Shrinks The U.S. economy, now officially in
recession, may be in the midst of the longest slump in the post-
World War II era as job losses mount and credit dries up.

Spanish Jobless Claims Rise for Eighth Month in November, Gaining 6.1% Spain’s jobless ranks swelled for an
eighth month in November, bringing the number of new claims in
the last year to almost a million, as the country heads into its
first recession in 15 years.

Swiss Central Bank Looks for New Tools to Tackle Zero Interest-Rate World The Swiss National Bank is becoming
the first central bank in Europe to learn what it’s like to live
in a zero interest-rate world.

Retailers' Sales Rose 1.9% During Two Days After U.S. Thanksgiving Holiday Sales at U.S. retailers rose 1.9
percent in the two days following the Thanksgiving holiday,
ShopperTrak RCT Corp. said, as a decline on Nov. 29 further
damped the smallest Black Friday gain in three years.

Iceland's Crisis Sends Viking Descendants Back to Native Norway for Jobs Almost 1,200 years after Viking chief
Ingolfur Arnarson left Norway to found Reykjavik, the crisis
engulfing Iceland is forcing his descendants home.

Swiss Inflation Rate Drops More Than Expected, Follows Slide in Oil Price Switzerland’s inflation rate dropped
the most in 15 years in November as the price of oil declined,
giving the central bank more leeway to bolster the economy.