US service industries expanded in March at the fastest pace since May 2006 indicating that the recovery in the US economy has spread beyond the manufacturing sector and is creating jobs. The Institute for Supply Management's index of non-manufacturing businesses, which comprise almost 90% of the economy, rose to 55.4, a bigger jump than expected and up from 53.0 the previous month. The pace of orders to service industries rose to the highest level since 2005, while backlogs were the highest since August 2007, indicating companies were having trouble meeting demand.On Friday the US Labor Department said that employers increased payrolls by 162,000 workers last month, the third gain in five months and the largest since March 2007, indicating that companies are increasingly confident regarding economic recovery. Sustained employment gains would boost incomes leading to increased consumer spending which accounts for about 70% of the economy. James O Sullivan, chief economist at MF Global Ltd said "the recovery is looking increasingly self sustaining".Also yesterday a report by the National Association of Realtors showed that pending home sales in February jumped the most since 2001. The index of purchase agreements, or pending home sales, rose to 8.2%, the second biggest gain on record and the largest since October 2001. Buyers may be taking advantage of a tax credit that requires contracts to be signed by the end of April, indicating that the market might soon see a rebound in sales.“Some of this may be an increase in activity ahead of the prospect of the expiration of the homebuyer tax credit,” said Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York. Even so, “if what we’re seeing in the labor market is actually showing decent growth, then I would expect housing would follow.”Pending sales are considered a leading indicator because they track contract signings. The Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The pending sales data goes back as far as January 2001.North of the border in Canada the Loonie again moved closer to parity last week on the back of rising crude oil prices. Oil prices have been rising amid growing optimism that improved US job creation will boost economic recovery and lead to higher demand for crude oil. World oil prices have been on an upward trend partly because of signs of improvement in the US economy, but also because of a weak US Dollar which tends to increase prices of commodities priced in that currency.Yesterday the Canadian Dollar rose by 0.60% against its American counterpart closing at CAD 1.0019 in the forex online market.Tomorrow will bring the release of Canadian building permits. Permits made a huge jump four month ago before returning to normal. After a fall of 4.9%, permits are expected to rise by 2.1% this time and may give a boost to the currency. Also out tomorrow is the Ivey PMI. This index has shown that the Canadian economy has expanded in the last two months. This time it is expected to show a rise from 51.9 points to 55.1 points.
Fewer Americans filed claims for jobless benefits last week, bringing the average over the last month to the lowest level since 2008 as the economic recovery prompted companies to retain staff. Initial jobless applications fell by 6,000 to 439,000 in the week ending March 27th. The number of people receiving unemployment insurance was almost unchanged while the number of people receiving extended benefits rose.Employers are slowing job cuts, a sign of confidence, as the U.S. emerges from the worst recession since the 1930s. Sustained employment gains are needed to boost consumer spending, which accounts for about 70% of the economy. Economists had predicted a drop in weekly claims to 440,000, from a previously estimated 442,000 for the week ended March 20th.Yesterday a report from ADP Employer Services showed that companies had unexpectedly cut payrolls in March. The 23,000 decline in payrolls was the smallest in two years and followed a revised drop of 24,000 claims the previous month.In other news the US manufacturing sector has expanded in March at its fastest rate in six years. The Institute of Supply Managements PMI rose to 59.6 points in March, up from 56.5 in February. The PMI is calculated from data on new orders, production, employment, and purchasing. An index reading above 50 indicates that activity is rising. Anything under 50 shows contraction. March was the eight month in succession that US manufacturers have increased output.The ISM's latest monthly figure for the US exceeded the market expectation of 57 and comes as the wider economy is continuing to recover. The institute said growth was strongest among clothing manufacturers. Other recent economic data showed that consumer spending rose in February but at its slowest rate since September of last year. In the forex online market yesterday the US Dollar gained 0.72% against the Pound closing trading at GBP 1.5288. Against the Euro the US Dollar climbed 0.58% to close at EUR 1.3585. Across the water in Europe, retail sales in Germany, the Euro Zones largest economy, fell for the second month in February as bad weather and concern that unemployment might rise kept consumers at home. German consumer confidence slipped to an eight month low in March and the coldest weather in 14 years kept people at home. At the same time rising energy prices pushed inflation to 1.3% in March. But German unemployment fell unexpectedly in March as the economy recovered from recession.European PMI data showed yesterday that manufacturing across the Euro Zone expanded at a faster pace than initially estimated in March as the recovery in the global economy prompted companies to increase output. According to figures released by the London based Market Economics yesterday the European PMI rose to 56.6 from 54.2 in February. That is above the initial estimate of 56.3 and the fastest rate of growth since November 2008. European manufacturers are bolstering the recovery from near stagnation in the fourth quarter of 2009 as the Euro's 5.7% drop against the US Dollar this year makes European exports more competitive abroad.
In the US the ADP Non-Farm Payroll has shown that companies there unexpectedly cut payrolls in March. The 23,000 decline was the smallest in two years and followed a revised 24,000 drop the prior month, data from ADP Employer Services showed today. Over the previous six months, ADP’s initial figures have overstated the Labor Department’s first estimate of private payroll losses by as little as 2,000 in February to as much as 151,000 in November. A March payroll gain in line with the median estimate is due to the fact that the ADP’s figures aren’t influenced by weather and don’t include government payrolls which will reflect the hiring of temporary workers to conduct the census. The government has been hiring thousands of workers to conduct the regular 10-year U.S. Census, but those jobs are temporary. ADP includes only private employment and doesn’t take into account hiring by government agencies.Analysts feel that companies are still hesitant to add workers until they are convinced that the economic recovery has taken hold. Joel Prakken, chairman of Macroeconomic Advisers LLC in St. Louis, which produces the figures with ADP said “the economic recovery has not been long enough or strong enough along the way yet to produce the kind of rapid employment that people are hoping for.” Tomorrow's release of Non-Farm Payrolls is expected to show growth of 200,000 nonfarm jobs for March. Some economists are even predicting gains of up to 250,000. If the forecasts prove accurate, it would be the largest expansion since November 2007 and only the second advance in the past 27 months.Although government statisticians try to account for season factors, severe snowstorms throughout the country skewed the data in February. In fields such as retail, construction and transportation, workers missed time and companies delayed hiring decisions. As a result, some of the increase in hiring that should have taken place in February got pushed into March. Before Non-Farm Payroll data is released tomorrow American unemployment claims are due to be published later today. The figures have been improving in recent weeks dropping from 496K to 442K. Another drop in claims would raise expectations ahead of tomorrow's release however the figures are expected to remain almost unchanged.Also due out later today is the manufacturing report issued by the Institute for Supply Management. The ISM report for March is projected to rise to 57.4% from 56.5%, according to a MarketWatch survey. Readings above 56% are viewed as consistent with strong growth in manufacturing. In trading yesterday the US Dollar fell 0.62% against the Euro to close at EUR 1.3507. It gained 0.73% on the Pound to close at GBP 1.5182.North of the border, Canada’s economy expanded at the fastest pace in three years in January, led by manufacturing, wholesaling and construction, adding to evidence that the country is recovering more quickly than policy makers expected. Gross domestic product increased 0.6% from December, the fifth straight gain and the biggest since December 2006, according to data from Statistics Canada. The report suggests first-quarter economic growth is still coming in faster than the Bank of Canada predicted, after output expanded at the highest quarterly rate since 2000 in the October-December period. Investors have raised bets that Governor Mark Carney will increase his key interest rate in the next few months on signs of quicker inflation and growth. Carney has pledged to keep his key lending rate at a record low 0.25% through June unless the inflation outlook shifts. He also said March 24 the commitment is “expressly conditional” on inflation, and said that a key measure of inflation has increased faster than expected. The central bank predicted the economy will grow at a 3.5 % pace this quarter and a 4.3% rate in the April- June period before slowing through next year. Canada’s 5% growth in the fourth quarter exceeded the Bank of Canada’s 3.3 % estimate. Gross domestic product was 1.3% greater in January than in the same month a year ago. The country’s first recession since 1992 ended in the third quarter of last year. In a separate report, Statistics Canada said that non-farm payrolls were unchanged at 14.53 million in January from December, and down 1.1% from the year-earlier month. Prime Minister Stephen Harper has said job creation is a top priority for his government this year. In the forex online market the Loonie climbed up 0.39% against its American counterpart yesterday to close trading at CAD 1.0157.
