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Last Week’s Highlights:
Stocks: Surge
Bonds: 10-yr Treasury stable
Oil: Holding $103
Dollar: Remains weak at 1.57 euro
Non-Farm jobs: -80k – more than expected
Unemployment: 5.1% – higher than expected
Economics This Week:
Date Item Est. Comment
4/10 Trade Balance -57.4 Continued narrowing
4/14 Retail Sales Looking for signs of slowing
4/15 PPI Expectations for lift after Feb jump
4/16 CPI Rise seen at after flat core rate in Feb
Employment Weakens
Last Friday’s weaker than expected employment data was not the best news one could have received. The unemployment rate lifted to 5.1% while jobs growth showed a -80k change. The market had expected 5% and -50k for the reports. The number of unemployed persons increased by 434,000 to 7.8 million in March, and the unemployment rate rose by 0.3 percentage point to 5.1 percent. Since March 2007, the number of unemployed persons has increased by 1.1 million, and the unemployment rate has risen by 0.7 percentage point.
As a reminder, it’s important to remember that 5% unemployment is considered near full employment in the US. While Friday’s number was still in the “full” range, the market bears only see the glass half empty and this number as a harbinger of worse to come.
Despite this gloomy backdrop, the Dow managed to have a tremendous rally last week. After starting the week at about 12,200, the market surged on Tuesday to close at 12,650 – almost a 400 point advance (8th largest daily increase on record). Why the surge? Seems it all got ignited by the financials, but there was no real astounding economic or financial news that day. Could it simply be the market is finally recognizing value? Do we believe the credit and liquidity crunch is near-over? Chalk it up to yet another Dow “400” day. Inquiring minds want to know!
Econ 101 – Side Bar
Why are there two monthly measures of employment?The household survey and establishment survey both produce sample-basedestimates of employment and both have strengths and limitations. The establishment survey employment series has a smaller margin of error on the measurement of month-to-month change than the household survey because of its much larger sample size. The household survey has a more expansive scope than the establishment survey because it includes the self-employed, unpaid family workers, agricultural workers, and private household workers, who are excluded by the establishment survey (Bureau of Labor Statistics).
Fed’s Words Not Comforting
Also on the wires at the end of last week were Federal Reserve chair Bernanke’s gloomy comments to Congress on the economy. Bernanke acknowledged for the first time that a US recession is possible because homebuilding, employment, and consumer spending will deteriorate. “It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,” said Bernanke. Hmmm, is that new news or old news?
The fact that the Fed is now conceding publically that it’s probably a bit worse than thought probably pushes out the recovery estimates from mid-year to Q3. One can imagine that this does not make the banking system particularly more comfortable from a lending perspective, which in turn suggests continued tightness in the credit markets for months to come.
Economic Factor Round-Up: 
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