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Point of View 6
4
Housing Starts 1.05 1.03 0.88 0.67 0.56 0.60 0.64 0.66 2.07 1.81 1.34 0.90 0.61 0.80
2
U.S. Outlook Economics Group
International Trade Balance • Wednesday
The trade deficit narrowed considerably to $40.4 billion in
November from $56.7 billion, dropping to a five-year low. A U.S. Exports and Imports
collapse in the value of oil imports explains much of the decline. Year-over-Year Percent Change, 3-Month Moving Average
30% 30%
However, non-oil imports weakened sharply as well, reflecting
weakness in the domestic economy. Meanwhile, foreign recessions
are causing exports to decline. 20% 20%
7.5% 7.5% We expect retail sales will decline 0.2 percent in January with motor
vehicle sales continuing to pull down the headline number. Light
5.0% 5.0%
vehicle sales registered 9.6 million units in January, the lowest since
2.5% 2.5% 1982. Same store sales continue to show consumers pulling back on
0.0% 0.0% discretionary items with department store sales down sharply.
-2.5% -2.5%
Retail sales excluding autos should increase 0.6 percent due in part
to a slight uptick in prices at the pump.
-5.0% -5.0%
-7.5% -7.5%
Sales, Year/Year Percent Change: Dec @ -1.1%
-10.0% -10.0%
3-Month Annual Rate: Dec @ -10.0%
-12.5% -12.5% Previous: -2.7% Wachovia: -0.2%
96 97 98 99 00 01 02 03 04 05 06 07 08 Consensus: -0.4%
Business Inventories • Thursday
Business inventories declined for the third consecutive month in
November providing further evidence of a tough fourth quarter for Business Inventories
Total Inventory-to-Sales Ratio
business spending. The inventory-to-sales ratio continued to climb 1.60 1.60
as sales fell faster than business owners could cut production.
1.55 1.55
3
Global Review Economics Group
Global Review
(Continued from Page 1)
spending in the United States plunged 9.8 percent in December.) UK Purchasing Managers Indices
Tax rebates that were legislated last autumn helped to boost Diffusion Indices
65 65
Australian retail sales in December. But that’s exactly the point.
Australian policymakers (both monetary and fiscal) are taking 60 60
aggressive steps to stimulate the economy. Although Australia may
yet slip into recession, the downturn down-under probably will be 55 55
less severe than in most other major economies.
50 50
As widely expected, the Bank of England cut its policy rate by
another 50 bps on Thursday. In its statement announcing the move, 45 45
the Bank said that output thus far in the first quarter continues to
contract at a very sharp rate. Indeed, real GDP in the fourth quarter 40 40
declined at an annualized rate of 5.9 percent, the sharpest rate of
contraction since the very deep recession of the early 1980s. As 35 35
shown in the top chart, the purchasing managers’ indices for the
UK Services: Jan @ 42.5
manufacturing, construction and service sectors all edged a bit 30
UK Construction: Jan @ 34.5
30
higher in January. That said, the indices remain in territory that is UK Manufacturing: Jan @ 35.8
25 25
consistent with sharp contraction. In our view, the Bank of England
2000 2002 2004 2006 2008
will cut its main policy rate – which already stands at an all-time
low of 1.00 percent – even further in the months ahead as the
British economy remains mired in deep recession.
The European Central Bank probably has more cutting to do as European Manufacturing
well. However, it did not exercise that option at its policy meeting Purchasing Manager Indices
65 65
this week, choosing instead to keep its policy rate unchanged at
2.00 percent. The ECB said that it had anticipated the sharp drop in
economic activity that has occurred since it last met in early 60 60
4
Global Outlook Economics Group
U.K. Unemployment Rate • Wednesday
British real GDP fell at an annualized rate of 5.9 percent in the
fourth quarter, the sharpest sequential rate of contraction since U.K. Unemployment Rate
1980. Indeed, the current slump appears to be the deepest recession 8.0%
Seasonally Adjusted
8.0%
that Great Britain has suffered since the very painful downturn of
the early 1980s. The unemployment rate already exceeds six 7.5% 7.5%
percent, and the only question seems to be: “How high will it go?”
7.0% 7.0%
The Bank of England will also release its quarterly Inflation Report
6.5% 6.5%
on Wednesday. The Bank’s forecasts for GDP growth and CPI
inflation over the next two years will help investors judge how 6.0% 6.0%
much more monetary easing the Bank may undertake. Data on
house prices in January, which are on the docket for Monday, and 5.5% 5.5%
the trade balance in December, which are slated for release on
Tuesday, round out a busy week in terms of U.K. economic data. 5.0% 5.0%
4.5% 4.5%
Unemployment Rate: Oct @ 6.1%
Previous: 6.1% 4.0% 4.0%
1997 1999 2001 2003 2005 2007
Consensus: 6.3%
Euro-zone Real GDP Growth • Friday
Real GDP in the Euro-zone declined 0.2 percent (not annualized) in
Euro-zone Real GDP the third quarter, and most monthly indicators suggest that the rate
5.0%
Bars = Compound Annual Rate Line = Yr/Yr % Change
5.0%
of contraction rose significantly in the fourth quarter. Indeed, we
estimate that real GDP fell one percent in the fourth quarter. Not
only did exports fall sharply, but growth in consumer spending
4.0% 4.0% probably turned negative as well last quarter. The Euro-zone
appears to have slipped into its first recession, which incidentally is
3.0% 3.0% a deep one, since the inception of European Monetary Union in
1999.
2.0% 2.0%
Most major countries in the Euro-zone also release their individual
GDP growth figures on Friday, and the results are not expected to
1.0% 1.0% be pretty. We project that the German, French, and Italian
economies (among others) all contracted markedly in the fourth
0.0% 0.0% quarter.
Compound Annual Growth: Q3 @ -0.8%
Year-over-Year Percent Change: Q3 @ 0.6%
-1.0% -1.0% Previous: -0.2% (not annualized) Wachovia: -1.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
Consensus: -1.3%
G-7 Meeting • Friday
Finance ministers and central bank governors will gather in Rome
next weekend for their semi-annual meeting. With the global OECD Industrial Production
Year-over-Year Percent Change
economy mired in its worst recession in the post-World War II era, 9% 9%
investors anxiously await steps that governments can take on a
coordinated basis to help bring the current financial crisis to an
6% 6%
end. G-7 meetings often serve as forums in which policymakers
from major countries pledge cooperation to tackle pressing
economic and financial problems. 3% 3%
5
Point of View Economics Group
Interest Rate Watch Topic of the Week
Weak Jobs Suggest Continued Fed Central Bank Policy Rates Economic Downturn Challenges State
Easing 7.5% 7.5% and Local Tax Revenue
Today’s weak employment report US Federal Reserve: Feb - 6 @ 0.25%
ECB: Feb - 6 @ 2.00% The recession is taking a heavy toll on
Bank of Japan: Feb - 6 @ 0.10%
reinforces our view that the Fed will Bank of England: Feb - 6 @ 1.00% state and local tax revenue. With
6.0% 6.0%
keep the funds rate in the 0-25 basis roughly 77 percent of total tax revenue
point range. Moreover, given the nationwide coming from income,
weakness in consumer spending, we 4.5% 4.5%
property and sales tax receipts,
expect that the Fed will continue to revenues are under pressure on nearly
support consumer related asset backed 3.0% 3.0% every front. Layoffs are cutting into
facilities by buying commercial paper income tax receipts, while falling home
and asset backed paper. Financial prices and the faltering stock market
1.5% 1.5%
stability and economic recovery are hitting a whole variety of taxes and
continue to be the primary fees.
intermediate-term policy targets for the 0.0% 0.0%
Personal income tax receipts will likely
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Fed. The recession will continue at be reduced considerably during the
least through the first half of this year. coming year due to a weakened labor
Because of continued economic market. The economy has shed more
weakness we expect that the Fed will Yield Curve than 3.5 million jobs since the recession
maintain its expanded balance sheet to 4.00%
US Treasuries, Active Issues
4.00%
began, with more than 1.5 million jobs
support financial markets. The Fed will eliminated during the fourth quarter
continue with its outright purchases of 3.50% 3.50%
alone. With layoff announcements
Government Sponsored Enterprise 3.00% 3.00% picking up at the start of the year, we
(GSE) debt and Agency mortgage expect total job losses to eventually
2.50% 2.50%
backed securities and asset-backed reach more than five million.
paper. Monetary policy continues to 2.00% 2.00% To meet balanced-budget
adjust to an environment of economic requirements, many state and local
1.50% 1.50%
recession, lower inflation expectations governments are either pulling back on
and the imbalance of asset valuations. 1.00% 1.00% spending, raising taxes or both.
But Weak Jobs Also Raise Credit 0.50%
February 6, 2009
0.50%
Spending cuts are one of the few
January 30, 2009
Concerns January 6, 2009 options open to state and local
Credit quality will be challenged.
0.00% 0.00%
governments in the short term, and
3M 2Y 5Y 10
Y
30
Y
Weak jobs suggest weak consumer many have cut spending dramatically.
spending and rising delinquency rates Unfortunately, more cuts are likely
for all consumer-related debt. For unless funding can be secured from the
many businesses top line revenue Forward Rates federal government. Raising taxes in a
declines will reflect lower consumer 2.25%
90-Day EuroDollar Futures
2.25% recession often creates more problems
spending. For many firms, the hit to than it solves.
cash flow and ultimately profits The recovery for state and local tax
2.00% 2.00%
dictates wider credit spreads in the revenue should lag the overall
marketplace. economic recovery as the
Finally, weaker economic growth
1.75% 1.75% unemployment rate tends to peak well
dictates weaker public sector revenues after the recession ends. We expect the
and thereby a squeeze on public 1.50% 1.50% unemployment rate to peak in early to
finances. Longer dated federal and mid-2010, which means state and local
state debt will begin to reflect this tax revenue will likely remain
1.25% 1.25%
credit/revenue issue in a steeper yield February 6, 2009 challenged until 2010.
January 30, 2009
curve and perhaps even credit January 6, 2009
1.00% 1.00%
downgrades al lá California. Read our report on the topic here.
Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10
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6
Market Data Economics Group
Market Data ♦ Mid-Day Friday
U.S. Interest Rates Foreign Interest Rates
Friday 1 Week 1 Year Friday 1 Week 1 Year
2/6/2009 Ago Ago 2/6/2009 Ago Ago
3-Month T-Bill 0.28 0.23 2.08 3-Month Euro LIBOR 2.02 2.09 4.36
3-Month LIBOR 1.24 1.18 3.13 3-Month Sterling LIBOR 2.12 2.17 5.59
1-Year Treasury 0.49 0.47 1.82 3-Month Canadian LIBOR 1.50 1.62 3.92
2-Year Treasury 0.96 0.95 1.92 3-Month Yen LIBOR 0.66 0.67 0.87
5-Year Treasury 1.92 1.88 2.65 2-Year German 1.40 1.53 3.25
10-Year Treasury 2.95 2.84 3.59 2-Year U.K. 1.70 1.50 4.13
30-Year Treasury 3.65 3.60 4.35 2-Year Canadian 1.13 1.41 3.05
Bond Buyer Index 4.96 5.16 4.33 2-Year Japanese 0.42 0.41 0.58
10-Year German 3.36 3.30 3.90
Foreign Exchange Rates 10-Year U.K. 3.74 3.70 4.46
Friday 1 Week 1 Year 10-Year Canadian 3.00 3.05 3.79
2/6/2009 Ago Ago 10-Year Japanese 1.34 1.30 1.41
Euro ($/€) 1.287 1.281 1.463
British Pound ($/₤ ) 1.477 1.454 1.962 Commodity Prices
British Pound ( ₤/€) 0.871 0.881 0.746 Friday 1 Week 1 Year
Japanese Yen (¥/$) 91.794 89.920 106.540 2/6/2009 Ago Ago
Canadian Dollar (C$/$) 1.241 1.230 1.006 W. Texas Crude ($/Barrel) 39.43 41.68 87.14
Swiss Franc (CHF/$) 1.168 1.162 1.098 Gold ($/Ounce) 912.31 927.85 900.60
Australian Dollar (US$/A$) 0.670 0.638 0.896 Hot-Rolled Steel ($/S.Ton) 475.00 475.00 670.00
Mexican Peso (MXN/$) 14.168 14.333 10.819 Copper (¢/Pound) 157.20 146.20 330.75
Chinese Yuan (CNY/$) 6.835 6.852 7.184 Soybeans ($/Bushel) 9.73 9.61 12.78
Indian Rupee (INR/$) 48.691 48.875 39.520 Natural Gas ($/MMBTU) 4.64 4.42 7.99
Brazilian Real (BRL/$) 2.259 2.323 1.752 Nickel ($/Metric Ton) 11,386 11,349 26,575
U.S. Dollar Index 85.716 85.999 76.141 CRB Spot Inds. 339.33 331.60 478.12
Japan UK Euro-zone
Global Data
7
Wachovia Economics Group
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accuracy or completeness, nor does Wachovia assume any liability for any loss that may result from the reliance
by any person upon any such information or opinions. Such information and opinions are subject to change
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purchase or sales of any security or as personalized investment advice. © 2009 Wachovia Corp.