What’s the Story? A Tale of Two Economies

by CC March 1, 2012 9:17 am • Commentary

It’s a tale of two economies this morning as the US sees continued positive economic data showing the economy is slowly but surely improving. On the other hand, austerity measures are continuing to take their toll on the data in Europe, with the economic zone teetering on the edge of another recession.


The number of Americans filing first-time claims for jobless benefits fell to a level matching a four-year low, more evidence the labor market is healing.

Applications for unemployment insurance decreased 2,000 in the week ended Feb. 25 to 351,000, Labor Department figures showed today. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls fell, while those getting extended payments also declined.


Personal income rose about in line with expectations, while spending gained 0.2 percent, below estimates. At the same time, the Personal Consumption Expenditures headline index, which includes food and transportation, gained 0.2 percent in January and rose 2.4 percent from the same period in 2011.

Initial claims for state unemployment  benefits fell 2,000 to a seasonally adjusted 351,000, the Labor Department said. The prior week’s figure was revised up to 353,000 from the previously reported 351,000.

Claims have been hovering near four-year lows over the last few weeks. Economists polled by Reuters had forecast claims unchanged at 351,000 last week.

The four-week moving average for new claims, considered a better measure of labor market trends, dropped 5,500 to 354,000 — the lowest level since March 2008.

New applications for jobless benefits have declined through much of February, raising hopes for a third straight month of solid employment gains.

Nonfarm employment likely increased 200,000 last month, according to a Reuters survey, after rising 243,000 in January. The unemployment rate is seen holding at a three-year low of 8.3 percent in February.

The government will release February’s employment report on March 9. While the labor market is gaining momentum, the level of employment is still 5.82 million from its prerecession level.


The jobless rate in the 17 euro nations rose in January to 10.7 percent from 10.6 percent in December reaching the highest level since the introduction of the euro in 1999, Eurostat, the statistical agency of the European Union, reported from Luxembourg. Flagging economies like Italy and Greece were responsible for much of the increase.

For all 27 European Union countries, the jobless rate ticked up to 10.1 percent in January from 10.0 percent in December, Eurostat said, with a total of 24.3 million men and women out of work.

Eurostat also reported that euro zone inflation edged up in February to 2.7 percent, from 2.6 percent in January. The European Central Bank tries to hold increases in the general level of prices to just under 2 percent; it has not met that target for 15 consecutive months.


Greece has not triggered a payout on credit default swaps by its recent moves to prepare for a debt restructuring, the International Swaps and Derivatives Association said on Thursday.

The ruling means holders of these insurance contracts, worth a net $3.25 billion, will not receive payment at this stage, though further rulings based on any new questions are still possible.

The committee was asked to consider whether a ‘credit event’ had occurred as a result of new Greek legislation that could force all bondholders to accept losses and after the European Central Bank took steps to avoid losses on its Greek bonds.

The 15 ISDA committee members voted unanimously that this did not meet the ISDA definition of a credit event.


The euro zone’s manufacturing sector contracted for the seventh straight month in February, with factories in the bloc’s struggling indebted states facing some of the toughest conditions on record, a business survey showed on Thursday.

It looks increasingly possible that the 17-member euro zone is stuck in a mild recession, as new orders continued to fall and backlogs of work dry up, even in the region’s most healthy economy Germany.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 49.0 last month from January’s 48.8, in line with a flash reading but has now been below the 50 mark that divides growth from contraction since July.


Stocks to Watch

Among the companies whose shares are expected to actively trade in Thursday’s session are Finisar Corp. (FNSR), Sotheby’s (BID) and Babcock & Wilcox Co. (BWC).

Finisar’s fiscal third-quarter earnings fell 53% as lower demand pushed down the telecommunications equipment provider’s sales, prompting a cautious current-quarter outlook. Shares dropped 11% to $18.10 after hours.

Sotheby’s fourth-quarter profit slumped 26% as the auctioneer generated less revenue and reported a narrower margin from commissions. Shares dropped 8.4% to $36.03 after-hours on the weaker-than-expected results.

Babcock & Wilcox’s fourth-quarter earnings rose 22% as the nuclear-infrastructure company saw revenue growth among most of its business segments, led by improvement in its nuclear energy unit. Shares were up 5% at $27.03 after hours as the company beat both earnings and revenue expectations.

Also, shares of Cable & Wireless Worldwide PLC (LSS:UK:CW)  jumped 18% after speculation that Tata Communications Ltd. (BOM:IN:500483)  would make a bid for the U.K. global telecom group.

Overnight Headlines (Links)

Euro-Zone Crisis

Panel Holds Fate of Greek CDS

Data Deal Double Blow to Euro Zone

In the Markets

China Slashes Share of U.S. Dollar Assets

Bernanke Stays Cautious on Recovery

Huge Futures Trades Roil Markets

Copper Confronts a Round Trip

U.S. Calls Oil Market ‘Increasingly Tight’

On Wall Street

BofA Weighs New Fees

At MF Global, $165 Million Transfer Approved in a Flash

Wall Street Bonuses Tumble 14%

Judge Declines to Stop Deal for El Paso by Kinder Morgan