Will Friday's Unemployment Number Show a Weaker Economy?

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Thursday's report that first time unemployment claims were 445K, slightly better than the expected 454K, was a brief glimmer of improvement for the struggling economy. Worse than expected numbers in Britain and Canada, however, were reported, so the temporary abatement of USD weakness might have been in response to bad news elsewhere. The Halifax HPI m/m report show real estate prices weakened to a -3.6%, sharply under the forecast of +0.6% and +0.4% in the previous period. This report will raise the debate amongst the policy makers at the Bank of England, and gilt yields are already working lower anticipating the coming of their version of QEII.

In Canada the m/m report of building permits showed a drop of 9.2%, less than the projected -1.9% and -3.4% in the prior report. Recent advice from various bankers and brokers has stated that the US economy is now 'decoupled' from the global economies, and the rest of the world will carry on quite well without the US. That may be true, but it looks like they should have made an exception for Canada.

Friday we get important monthly unemployment reports in both Canada and the US. As a bonus, the exciting and unpredictable non-farm payrolls report is presented. This data is expected to confirm that the U.S.economy is slacking, and will make the big city Federal Reserve Governors, bond traders and bankers aggressively champion the QEII option. Some of the QEII doubters argue this excessive liquidity is bound to cause those deadly feared asset bubbles somewhere in the world. Bernanke and friends seem bound to carry on, and damn potential bubbles. They may not be our bubbles anyway.

A study of the September unemployment released by Gallup this morning found that September unemployment was up to 10.1%. The underemployment rate is up from 18.6% at the end of August to 18.8% at the end of September. Unemployment, according to Gallup, weakened in the second half of September. But Gallup says:

"Friday's Unemployment Rate Report Likely to Understate"

It sounds like the Gallup report may be designed to lower expectations. Surprise, the report is not as bad as Gallup and others thought it might be.

The weekend IMF meetings in Washington might make for some weekend headlines. So far we seem to have an abundance of hand wringing and expressions of concern. Recent euro strength is bound to give the Eurozone some head winds to overcome. This morning Market Watch reported:

"European Central Bank President Jean-Claude Trichet warned Thursday that excess volatility in foreign-exchange markets can have an adverse impact on economic stability, while both the ECB and the Bank of England opted to make no changes to monetary policy. .......He noted that currencies were set to be discussed at meetings on the sidelines of the International Monetary Fund’s annual meeting in Washington this weekend. Trichet also said flexibility for the Chinese yuan was important as well."

It looks like volatility in the Forex markets is here to stay, so opportunities will abound. I will be traveling tomorrow, and out of the country next week, so no trades or charts today. Just remember though, it is always easier to ride a horse in the direction he is going.

Author: Ralph Shell

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