The U.S. economy added 120,000 payroll jobs in November according to the official BLS employment report; about as expected. The unemployment rate fell significantly from 9.0 percent in October to 8.6 percent, the lowest it has been since March 2009. Ongoing declines in the labor force participation rate combined with strong gains in the household employment survey, up 278,000 in November, brought the unemployment rate down. The disconnect between the weaker payroll survey and the stronger household survey muddies the analysis of the labor market. What we can say is that the majority of labor market indicators are showing more improvement over the last two months than they showed at mid-year 2011. The good news is that the U.S. economy is generating forward momentum through the fourth quarter, with weak-to-moderate hiring, weak real income growth, rising car sales and generally favorable conditions for manufacturing. The ISM Manufacturing Survey for November ticked up to 52.7 percent as inventory, production and orders data all improved. U.S. vehicle sales increased for the third consecutive month in November, hitting a 13.6 million unit annual rate. This is very good news for the economy but ongoing gains should not be taken for granted, given flattish real disposable income. Construction spending increased by 0.8 percent in October. The Federal Reserve has reopened currency swap lines with Europe with coordinated dollar swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. Beginning on December 5, pricing for temporary dollar swaps will be reduced by 50 basis points. Also, the six banks have established bilateral swap arrangements that will allow for additional liquidity in each jurisdiction within their currency areas. This is designed to be a preemptive move to reduce banking system pressures emanating from a deteriorating situation in the Euro-zone. Engaged swap lines have the potential to greatly expand the Federal Reserve’s balance sheet as they did in 2008. The Federal Reserve statement said that U.S. financial institutions currently do not face difficulty obtaining short-term funding. The recent batch of U.S. housing data offers no signs of improvement to residential real estate conditions. New home sales for November increased slightly to a 307,000 unit annual rate, still in the range of minimal activity. The Case-Shiller 20-City Composite House Price Index for September dipped by 0.6 percent. Over the prior year the Case-Shiller HPI is down 3.6 percent.
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