The sharp fall in the U.S. unemployment rate, to 8.6 percent in November from 9.0 percent in October, raises a question: Could expiring jobless benefits be having an effect on the number?

The decline in unemployment was driven in part by the disappearance of some 315,000 people from the labor force. If they haven’t looked for work in the past four weeks, they’re not counted as unemployed. But that doesn’t necessarily mean they didn’t want a job. Indeed, the Labor Department estimated that as of November, a seasonally adjusted 6.6 million people considered not in the labor force actually did want work. That number was up 192,000 from October.

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PG View: This is the same scenario I laid out in this morning’s Snapshot.

02-Dec (Freakonomics) — The November unemployment data that came out on Friday has Democrats crowing about the drop in the unemployment rate; yet Republicans are rightly pointing out that much of the drop was due to labor-force withdrawal. Neither party, however, seems to be noticing the most remarkable thing: the continuing, constant and historically high share of unemployment accounted for by the long-term unemployed, around 43 percent.

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02-Dec (The Hill) — Conservatives say they will try to block the International Monetary Fund from bailing out Italy and Spain, which they say could leave U.S. taxpayers with a huge bill.

Republicans on both sides of the Capitol complain that the Obama administration has refused to share details of what Treasury Secretary Timothy Geithner is discussing with European leaders amid reports the IMF could intervene.

Sen. Tom Coburn (R-Okla.) says he is planning legislation directing the U.S. government to veto an expanded role for the fund.

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02-Dec 2 (Reuters) — South Korea’s central bank said on Friday it bought gold in November for the second time this year to diversify its foreign reserves, joining its counterparts in other countries in seeking protection against financial instability and inflation.

Central banks around the world, especially in emerging economies, have accelerated gold purchases in recent months, driving up the total official sector gold purchase in the third quarter by more than double to 148.4 tonnes, according to the World Gold Council.

“We bought the gold as part of our diversification strategy and based on long-term investment considerations,” Lee Jung, an official at the bank’s reserve management group, told reporters.

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02-Dec (USAGOLD) — Gold pushed to a new 2-week high of 1762.70 in early New York trading before settling back into the range. While the biggest market mover remains the situation in Europe, attention turns to US employment every first-Friday. Markets initially rallied on the drop in the unemployment rate in November from 9.0% to 8.6%. More people working and spending their income in a loose monetary environment is a recipe for inflation. However, gains in both gold and stocks were subsequently tempered upon the realization that it was a drop in the labor force participation rate that was the primary catalyst for the decline in the jobless rate. There are still 13.3 million Americans out of work.

The ZeroHedge blog reported shortly after the BLS report that “Not seasonally adjusted people who are “Not In The Labor Force” increased by 576,000 in one month.” That figure certainly overshadows the headline net gain of 120,000 jobs. Drilling a little deeper into the data behind this month’s increase: Retail sales saw a large jump, which may be attributable to temporary holiday hires.

Along with upward revisions to payrolls in October and September paint a picture of slow (and arguably steady) job growth, that is not — or perhaps barely — keeping up with increases in the labor force; except in months like November when the labor force contracts markedly. If Congress passes another extension of unemployment benefits, the labor force may swell again, as you must be actively seeking employment in order to collect.

• US nonfarm payrolls +120k in Nov, below market expectations of +125k and well below whisper of +250k; Jobless rate falls to 8.6%. Participation rate falls from 64%.
• Eurozone producer price index ticks lower to 0.2% m/m in Oct, matching expectations, vs 0.3% in Sep; 5.6% y/y.
• Switzerland retail sales -0.2% y/y in Oct, vs big negative revision to -1.4% y/y in Sep.
• UK CIPS construction PMI falls to 52.3 in Nov, vs 53.9 in Oct.
• Indonesia CPI steady at 4.4% y/y in Nov.
• Japan Q3 MoF Capex Survey -9.8% y/y, vs -7.8% in Q2.

02-Dec (CNBC)— Job creation remained weak in the U.S. during November, with just 120,000 new positions created, though the unemployment rate slid to 8.6 percent, a government report showed Friday.

The rate fell from the previous month’s 9.0 percent, a move which in part reflected a drop in those looking for jobs. The participation rate dropped to 64 percent, from 64.2 percent in October, representing 315,000 fewer job-seekers.

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PG View: Slate columnist Matt Yglesias tweeted this shortly after the jobs report came out: “Decreasing unemployment by shrinking the labor force is not exactly winning the future.” He expounds on that sentiment in his MoneyBox blog.

01-Dec (Der Spiegel) — The boost from Wednesday’s coordinated action taken by major central banks around the world was immediate, but short lived. Whereas global stock indexes shot up after the announcement that the European Central Bank (ECB), the US Federal Reserve, the Bank of England and others would make it easier for banks to access US dollars, the euphoria quickly faded on Thursday.

Indeed, even ECB chief Mario Draghi felt compelled to warn against misplaced optimism. In a speech to the European Parliament on Thursday morning, he said that “downside risks to the economic outlook have increased.” In other words, the euro crisis, which has recently morphed into a financial crisis, could soon become an economic crisis.

But Draghi also seemed to hint at a possible way out of the downward spiral, saying that the ECB could be prepared to take additional steps to halt the crisis. First, however, Europe needed to move quickly toward greater economic integration.

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01-Dec (Reuters) — Germany would like European countries to set up special national funds for sovereign debt that is over 60 percent of gross domestic product to help build market confidence in the euro, Finance Minister Wolfgang Schaeuble said on Thursday.

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PG View: This so-called “redemption fund” has been categorized on the ZeroHedge blog as a “Hail Mary” play. As I understand it, the Debt Redemption Fund would be issuing debt to finance the newly issued sovereign debt of countries participating in the fund. It’s nothing more than a shell game.

01-Dec (The Wall Street Journal) — The sight of the world’s largest central banks acting in concert to ease funding strains in global financial markets is about as reassuring as watching an anti-tank ditch being dug. One can’t help wondering what’s coming next and how effective this defense will be.

European Commissioner Olli Rehn has said there are 10 days to save the euro, his eye on the Dec. 9 summit meeting at which we will see whether the euro zone reaches a decision to trade sovereignty for stability.

The first thing to say about the central banks’ action is that it proves that they aren’t going to sit on their hands and watch while the euro zone wrestles with itself. There is still a backstop for, as the central bankers’ parlance has it, “solvent counterparties with adequate collateral.”

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01-Dec (USAGOLD) — Gold remains well bid, but narrowly confined, after posting new 2-week highs overseas. The market euphoria provided by yesterday’s announced coordinated liquidity support for dollar swaps already seems to have been tempered somewhat by the realization that increased liquidity does not resolve any of the underlying fundamental issues. Nonetheless, that reality is unlikely to dissuade policymakers from continuing to pump liquidity and mispriced debt into the system every time there is a hint of duress.

The proliferation of paper — paper in the form of fiat currency and paper in the form of debt — has been a major driving force behind the long-term rally in gold. It would seem that those catalysts aren’t going to be withdrawn any time soon. And in fact, their use is escalating because global markets are now hooked on the “juice,” dependent on ever-larger doses.

• US ISM rose to 52.7 in Nov, above market expectations of 52.0, vs 50.8 in Oct.
• US construction spending +0.8% in Oct, above market expectations of +0.3%, vs +0.2% Sep.
• US initial jobless claims +6k to 402k for the week ended 25-Nov, above mearket expectations of 390k, vs upward revised 396k in previous week.
• UK CIPS manufacturing PMI falls to 47.6 in Nov, better than market expectations of 47.0, vs upward revised 47.8 in Oct. Weakest print in 2+ years.
• Eurozone manufacturing PMI (final) confirmed at 46.4 in Nov, in-line with expectations.
• Switzerland SVME manufacturing PMI falls to 44.8 in Mov, below market expectations, vs 46.9 in Oct.
• Switzerland Q3 GDP (sa) +0.2% q/q; 1.3% y/y, a marked slowing from downward revised 2.2% y/y in Q2.
• South Korea CPI rises to 4.2% y/y in Nov, vs 3.9% y/y in Oct.
• Thailand CPI steady at 4.2% y/y in Nov.
• China HSBC/Markit manufacturing PMI fell to 47.7 Nov, vs 51.0 in Oct: Official manufacturing PMI fell to 49.0 in Nov, vs 50.4 in Oct.

01-Dec (Financial Times) — Chinese manufacturing activity has contracted for the first time in almost three years, adding to fears about the health of the global economy.

The decline comes a day after the US Federal Reserve led a co-ordinated move to ease global liquidity concerns – particularly in Europe – and the Chinese central bank loosened monetary policy.

Chinese government data released on Thursday showed that the official purchasing managers’ index fell to 49 in November from 50.4 in October. The worse than expected fall marked the first decline since February 2009. A reading of less than 50 means the manufacturing sector has contracted.

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PG View: Our suspicion from yesterday proved accurate; that the reserve requirement cut portended bad PMI data.

30-Nov (CBS/AP) — A move by the world’s central banks to lower the cost of borrowing exhilarated investors Wednesday, sending the Dow Jones industrial average soaring 490 points and easing fears of a global credit crisis similar to the one that followed the 2008 collapse of Lehman Brothers.

It was the Dow’s biggest gain since March 2009.

Large U.S. banks were among the top performers, jumping as much as 7 percent. Markets in Europe surged, too, with Germany’s DAX index climbing 5 percent.

“The central banks of the world have resolved that there will not be a liquidity shortage,” said David Kotok, chairman and chief investment officer of Cumberland Advisors. “And they have learned their lessons from 2008. They don’t want to take small steps and do anything incrementally, but make a big bold move that is credible.”

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PG View: Yeah, stocks love big liquidity pumps and the likelihood of easier monetary policy and other accommodations to infinity and beyond.

30-Nov (Financial Times) — European finance ministers have increasingly settled on the European Central Bank as the indispensable saviour of the single currency after two days of meetings that revealed the shortcomings of other tools to fight the crisis.

The collective turn toward the ECB emerged as Italy’s new government received a dire warning from Brussels to reform its economy quickly or face a “full-blown” liquidity crisis.

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PG View: …but ECB continues to push back in effort to maintain its independence.

30-Nov (Bloomberg) — Euro-area finance ministers approved enhancements to their bailout fund while backing off from a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.

The finance chiefs of the 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters late yesterday in Brussels after leading the meeting.

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30-Nov (New York Times) — Much like our own recent housing crisis, the European financial mess is unfolding in a foreign language. It is the lingua franca of financial obscurity — “sovereign credit spreads” and other terms that most people don’t need, or care, to know.

Yet the bottom line is simple: Europe’s problems are a lot like ours, only worse.

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29-Nov (The Wall Street Journal) — Mexico’s central bank will begin selling dollars to support the peso on days the currency comes under heavy pressure, a move that shows how Europe’s financial crisis is forcing even the most orthodox central banks to become more active in the markets.

The Bank of Mexico will sell as much as $400 million a day in the exchange market on days when the peso is 2% weaker than the previous session, the country’s foreign exchange commission said on Tuesday.

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PG View: Banco de México is just the latest to join the cadre of interventionist central banks; but in a twist, they are moving to support their currency rather than knock it down.

30-Nov Washington Post) — Austan Goolsbee is the former director of President Obama’s Council of Economic Advisers and an economics professors at Chicago University’s Booth School of Business. On Monday, he published an op-ed on the crisis in Europe that made some provocative points, so I asked him to expand on them in an interview. I think it’s fair to say that Goolsbee is not an optimist when it comes to the euro. The problem, he says, is that even if you recapitalize the banks and end the runs on government debt, you haven’t solved the region’s growth problem.

…EK: So is there any way to hold the euro zone together?

AG: No, there probably isn’t.

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PG View: So, do you keep throwing money at Europe, hoping for an opportunity to unwinding the EMU in a controlled manner? Or does the core-Europe aversion to throwing good money after bad lead to a disorderly collapse? At which point, the individual countries try to pick-up the pieces in a reasonable time period afterwards?

30-Nov (Telegraph) — “We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday as EU finance ministers met in Brussels.

His comments came as Gerard Lyons, chief economist at Standard Chartered, said: “The euro cannot survive in its present format.”

“Throughout the year I have stressed that the world economy could suffer a double-dip if it was hit by one of three factors: an external shock, a policy mistake or a loss of confidence. Unfortunately, in recent months, the euro area has been hit by all three. And that is why the euro area will slip back into recession in 2012,” he said in his Economic Outlook for November.

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PG View: Another kick of the can within ten days, or a real solution? My money is on the former…

30-Nov (USAGOLD) — Gold has rebounded to two-week highs, spurred by a cut in China’s bank reserve requirements and a coordinated move by major central banks to cut dollar swap rates by 50 bp. Oh how gold and stocks (DJIA +400 points) love liquidity and expectations of ever-cheaper credit.

The PBoC announced a 50 bp cut in the reserve requirement ratio for banks from 21.5% to 21.0%, effective December 5. This was the first cut to the reserve ratio since 2008 and is being broadly interpreted as confirmation of a new round of global easing, ushered in by the surprise ECB rate cut this month. Expectations are rising for another 25 bp refi rate cut by the ECB next week amid heightened economic turmoil in the eurozone. Then the FOMC meets on 13-Dec. With the Fed funds rate already essentially at 0%, there is no room for the US central bank to move on rates, but they certainly could offer other forms of monetary accommodations, such as additional quantitative measures.

The Fed, in conjunction with the ECB, BoJ, SNB, BoE and BoC, announced a coordinated move to cut dollar swap rates by 50 bp. Rumors immediately began circulating that the Fed would likely cut the discount rate by 25 bp, possibly in advance of the FOMC meeting, to align the domestic lending rate with the new lower swap rate.

So you may ask: Why continue down the path of liquidity injections and cheap credit, when they have proven to be largely ineffective at getting the global economy back on track? The answer of course is that easy monetary policy is comparatively easy to accomplish and it absolves politicians — and individuals for that matter — from making some very difficult choices…at least for a while. Perpetuation of this long-standing reality bodes well for the long-term uptrend in gold.

• US ADP employment survey +206k in Nov, well above market expectations of +130k, vs upward revised 130k in Oct.
• Chicago ISM rebounded to 62.6 in Nov, well above market expectations of 58.5, vs 58.4 in Oct.
• US NAR pending home sales surged 10.4% to 93.3 in Oct, vs 84.5 in Sep.
• Fed, ECB, BoJ, BoE, SNB, BoC agree to coordinated 50bp cut to dollar swap rates.
• Germany retail sales better than expected at 0.7% m/m in Oct, but y/y pace falls to -0.4% from 0.6% in Sep.
• France producer price index rises to 0.5% m/m in Oct, vs upward revised 0.3% in Sep; 6.5 y/y, down from significant upward revised 6.8% y/y in Sep.
• German unemployment rate ticks lower to 6.9% on -20k drop in unemployed in Nov.
• Eurozone unemployment rate ticks higher to 10.3% in Nov.
• Eurozone consumer price index – Flash Estimate steady at 3.0% y/y in Nov, just above expectations.
• India GDP falls to 6.9% y/y pace in Q3, vs 7.7% y/y in Q2.
• Japan housing starts -5.8% y/y in Oct, up from -10.8% y/y in Sep.
• Japan construction orders 24.3% y/y in Oct, up sharply from -9.3% y/y in Sep.

by Mohamed El-Erian
30-Nov (FT Alphaville) — Risk markets love liquidity injections, real and perceived. As such, they will welcome today’s announcement by six major central banks to reduce the price of emergency financing and broadening its scope. They will also like the possibility that this dramatic coordinated move provides a stronger context for further actions at the level of individual institutions.

In justifying the move, the central banks point to the need to counter pressure on “the supply of credit to households and businesses and so help foster economic activity.” This is an objective that will sell well to the public and politicians. But it is not one that will be effectively met by the announced measures.

…The immediate impact on markets unambiguously favors risk assets across the world. The longer-term effect depends on the scale and scope of the follow through from others.

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