Jobless rate hits 5-month low but payrolls fall

WASHINGTON – The US unemployment rate surprisingly fell to a five-month low in January and factory payrolls grew for the first time since 2007, hinting at a labor market recovery even though the economy lost 20,000 jobs.

President Barack Obama cautiously welcomed the figures but said more needed to be done to put people back to work. Obama and his fellow Democrats fear voters could punish them in November congressional elections if headway is not made in tackling unemployment.

The decline in payrolls reported by the Labor Department on Friday was far smaller than the 150,000 drop posted in December. November's data from the survey of employers was revised sharply higher to a gain of 64,000, up from 4,000.

The jobless rate, based on a separate household survey, fell to 9.7 percent from 10 percent in December. That survey found employment rising, with the size of the labor force roughly flat. Analysts had expected payrolls to rise by 5,000 and the unemployment rate to edge up to 10.1 percent.

"The wheels of the economy are turning. The improvement in the employment data does match the increase in GDP the last two quarters so it's not a fluke. The economic recovery looks much more sustainable today," said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, referring to economic growth data for the fourth quarter 2009.

Details of the report were relatively upbeat. The length of the average workweek hit its highest in a year and overtime paid in manufacturing was the most since September 2008, suggesting growing pressure to add to payrolls.

Some analysts, however, were skeptical of the drop in the jobless rate and believed it would head higher again. The pickup in factory employment helped to lift US stocks, despite lingering worries about European fiscal problems.

US government debt prices rose and the US dollar hit an 8-1/2 month high versus the euro, tapping flight-to-quality trades from the troubles in Europe.

Annual revisions to the payrolls data showed job losses since the recession began were much deeper than originally thought. The economy has lost 8.4 million jobs since the start of the recession in December 2007, compared to 7.2 million before the revisions.

In January, the number of 'discouraged job seekers' stood at 1.1 million, up from 734,000 a year ago. Last month, 6.3 million people had been out of work of more than 27 weeks.

Job politics

With Americans increasingly anxious about persistent high unemployment, Obama has declared that job creation will be his top priority in 2010. Announcing plans on Friday to expand credit for small businesses, Obama said the employment report was cause for hope but not celebration.

"Understanding that these numbers will continue to fluctuate for months to come, these are welcome, if modest signs of progress along the road to recovery," Obama said.

Financial markets have grown nervous about the prospect of unemployment in the United States remaining high for a long time. The economy resumed growth in the second half of 2009, but a labor market recovery has yet to materialize.

Labor market weakness is causing households to remain wary of taking on new debt, with total consumer credit declining by $1.73 billion in December, a Federal Reserve report showed.

While the US economy is growing, recovery hopes in Germany were dealt a set back by a sharp drop in industrial output in December.

A survey of banks that do business with the Fed predicted the US central bank will start raising interest rates in the fourth quarter of this year as the labor market mends.

Analysts expect US payrolls to start growing in February as the government steps up temporary hiring for the 2010 census.

"This hiring will continue to push the unemployment rate lower and then once the need for these workers is finished they will be fired and the unemployment rate will drift back up to the 10 percent area," said Brian Fabbri, chief North America economist at BNP Paribas in New York.

Last month, the services sector added 40,000 jobs after shedding 96,000 positions in December. The figure included a rise in federal government employment, partly a result of early hiring for the census.

In another positive trend, temporary help employment rose again last month, while manufacturing payrolls increased 11,000, the first gain since January 2007. Manufacturing employment had dropped 23,000 in December.

But the construction sector continued to struggle, losing 75,000 jobs, likely because of unusually cold weather. Construction payrolls fell 32,000 in December.

In another sign of labor market improvement, the average workweek unexpectedly edged up to 33.3 hours, the highest in a year, from 33.2 in December, while manufacturing overtime rose to 3.5 hours, the highest since September 2008.

"This suggests that firms are straining to keep up with rising demand without hiring. We believe that as long as orders keep streaming in, at some point soon firms are going to have to give in and add workers," said Stephen Stanley, chief economist at RBS in Stamford, Connecticut.

Asian shares bring curtain down on year of recovery

HONG KONG - Asia's markets rebounded during 2009 from losses incurred in the global financial crisis, but analysts warned of further volatility in the 12 months ahead.

More than a year after world economies went into freefall, the Asia-Pacific region has recovered strongly, largely due to the rapid deployment of massive government stimulus measures.

The year saw investor confidence return across the region. Hong Kong's Hang Seng Index ended 52% higher after being stripped by nearly the same amount in 2008.

In China the Shanghai Composite Index surged 80% while Seoul's KOSPI added nearly 50%. Tokyo's Nikkei-225 ended a tumultuous year 20% higher.

However, analysts warned of further volatility in 2010, as the United States and China look to end massive stimulus packages.

"If the economic recovery in the US takes hold, the government will likely exit its stimulus package," ICBC International strategist Ernie Hon told Dow Jones Newswires.

"Additionally, China is already facing a potential property market bubble."

The Shanghai Composite Index enjoyed a huge bull run in 2009 after shedding nearly two thirds of its value in 2008 as the effects of the global financial crisis took hold.

Beijing in 2008 unveiled a four-trillion-yuan (586-billion-dollar) stimulus package along with big tax breaks to boost domestic spending amid the global slump.

But analysts see the Chinese market consolidating in 2010 as the government looks to rein in record lending and surging property prices.

"In 2010, the Chinese stock market may continue to consolidate in a see-saw pattern. Various factors may affect the market including the possible exit from the stimulus package" said Cai Junyi, stock analyst at Shanghai Securities.

Japan saw a volatile 12 months as the country exited recession but saw unemployment hit a record high as prices continued to fall along with wages and a stronger yen battered exporters.

On Wednesday the Nikkei-225 closed down 0.86% at 10,546.44, still up 20% over the year.

A major concern for policymakers in 2010 is tackling falling consumer prices and averting another deflationary spiral, analysts said.

"Even if the performances of individual companies are impressive (in 2010), the overall stock market wouldn't get a boost without confidence in Japan," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

Investors will continue to look to the United States amid signs the world's biggest economy is recovering from deep recession.

"Recent US economic data have been encouraging," said Macquarie Private Wealth Associate Director Marcus Droga in Sydney. "The US market obviously believes the economy is more likely to get better".

The Dow Jones Industrial Average was up 20% ahead of Thursday's final trading session of 2009.

Elsewhere Sydney's S&P/ASX 200 index added more than 30% in a year that saw Australia hailed as "the wonder from Down Under", as the only major Western economy to avoid recession and the first to ease monetary stimulus amid surging resources exports to China.

However, AMP Capital Investors chief economist Shane Oliver said he expected a weaker 2010 as the after effects of the banking crisis in the US continued.

"That's going to no doubt throw up a few losses here and there," he said.

In India, Mumbai's Sensex index added a massive 80% as the government's economic reforms and coordinated policy actions restored confidence with foreign investors returning.

Singapore's Straits Times Index was 65% higher, as the government declared the end to a severe recession that had emerged in the third quarter of 2008.

The region's other markets also surged, with Sri Lanka 128% higher, Bangkok and Manila more than 60% up on the year, Kuala Lumpur up 45% and Wellington 18% higher.

Search: Philippine central bank cuts key interest rates

MANILA, Philippines - The Philippine central bank cut its key policy interest rates by a quarter percentage point Thursday, saying a "measured" cut was needed to balance global financial strains and possible price increases in coming months.

The bank's Monetary Board lowered the overnight borrowing rate to 4.75 percent and the overnight lending rate to 6.75 percent.

It was the third drop in policy rates since December, and brought the cumulative reduction to one and a quarter percentage points. Interest rates were cut by half a point in each of December and January.

The Philippine economy grew 4.6 percent last year, its slowest pace in seven years as the global economic crisis took a toll on services and industry while agriculture wilted from typhoon damage.

"Global financial strains are likely to persist and pose risks to economic activity," the bank said.

Accommodative monetary policy could help ensure greater availability of credit and reinforce market confidence, it said.

But the bank said it implemented a "measured adjustment of policy rates" because of a possible rise in inflation due to the volatility in oil prices and exchange rates, increases in utility rates and potential price increases of some agricultural commodities, which it did not specify.

Inflation in the Philippines picked up to 7.3 percent in February from 7.1 percent in January, driven by a rise in the cost of food, beverages and tobacco, the government said Thursday. Inflation peaked at 12.5 percent in August last year.

Philippines considers Islamic stock index

KUALA LUMPUR, March 3 - The Philippines Stock Exchange said on Tuesday it is considering setting up an index of sharia compliant stocks to compete with the likes of Malaysia in capturing a slice of the Islamic investment market.

"We plan to look into it ... to see whether there is potential. Other exchanges in the Asian region are doing it so we might be left behind. We have to study it carefully," PSE President Francisco Lim told Reuters.

The stock exchanges of Malaysia, Indonesia and Singapore have established Islamic equity indexes while Thailand expects to launch its first such index next month.

About 30 companies on the Philippines stock exchange are sharia compliant, Lim said on the sidelines of an Islamic finance forum in the capital here.

He also said a suggestion to establish an Islamic index for the Southeast Asian region was made at a regional meeting of exchange chiefs but there had been little development since.

However, plans to set up electronic links and create an ASEAN trading board had progressed to the signing of memorandum of agreements last week between the bourses of the Philippines, Singapore, Malaysia, Indonesia and Thailand.

They are currently working on cost assessments for the infrastructure that will see the five exchanges each nominate 30 companies to be traded on a single linkage, Lim said.

"I think cost is a big issue," he said, adding that there was no target date to launch the mechanism. (Click on [ID:nISLAMIC] for more Islamic finance stories and for a speed guide)