Tag Archive | "Construction Sector"

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Troubling Data Across The Board

Politics continued to plague the euro zone and US economies and China’s rising housing crisis added fuel to the fire as currency markets trembled under the weight. European and Asian equity markets slipped on Monday as the US markets trended down by midday.

The euro slumped to 1.30USD. Britain’s pound slumped to a 2-year low against the yen and to 1.50USD on Monday.

In the euro zone, the lack of resolution to last week’s elections had markets on edge. The yield on Italian bonds rose, but the lack of a permanent government has many economists worried about how ECB Chairman Mario Draghi can help the struggling economy. Without a government, no commitment of austerity can be made to the ECB thus sealing off the infusion of more euros.

In the US, markets received the news of the sequester without blinking but by Monday a sobering tone was noted in Washington. President Obama reached out to Congressional Republicans and to Democrats in the hopes of composing middle ground legislation.

Obama apparently asked for consideration of a new direction for the massive spending cuts, specifically throwing entitlement reform and tax reform on the table.  Several Republican s have said they would consider closing some tax loopholes as long as entitlement reform is art of the package.

Public consensus is that the US must deal every aspect of the entitlement scenario. A lack of progress will certainly affect every sector of the US economy.

A revealing report from China on 60-Minutes confirmed what many analysts already realize. The Chinese construction market is overdue for a slowdown. 60-Minutes showed cities of unoccupied, new housing. All apartments in the massive buildings are sold but they remain vacant, unaffordable for the majority of the population.

On Sunday, China announced that its residential construction sector had slowed to its lowest activity in five years. China added more damaging data indicating that factory output slowed to multi-month lows in February.

China is already curtailing its ever expanding residential development but the effects have yet to be felt. This could be a housing bubble that has the potential to dwarf the US housing collapse.

In the UK, the pound fell because of reaction to a decline in the construction industry. This decline could push the country into its third recession in five years.

The data has supported the Bank of England’s cries for further quantitative easing, but there is unrest throughout the economy. Ian Stannard, the Head of European FX Strategy at Morgan Stanley explained, “The construction PMI today was quite weak, but the really big one is the services PMI which comes tomorrow and if that comes in weak as well it would increase the possibility of further action at this week’s BoE meeting.”

Forecasts for a global slowing in 2013 seem more likely now that politics has entered the economic fray.

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Construction Sector Slowdown Weighs On Pound Sterling

Pound sterling gains were halted in the overnight following the release of the Markit/CIPS UK construction PMI survey.  Although still relatively positive, survey results were worse than had been anticipated by analysts, leaving some still skeptical of any short term UK economic recovery.  As a result, the British pound traded slightly lower to yesterday’s high at 1.5841 against the US dollar.  The exchange rate hit as high as 1.5869 in midday trading yesterday.

According to the construction sector survey, index readings dipped to a 51.4 in January – below the December 53.2 mark.  Although this is the 13th consecutive month of gains, the figure stands as the weakest reading in 4 months and compounds fears that the recession isn’t just over yet.  Notably, however, today’s survey findings still portend to a thin silver lining for Europe’s second largest economy.  According to subcomponent readings, confidence among construction companies and business leaders continues to be optimistic – although the same companies are unlikely to add to current payrolls.

The recent round of optimism seems to have been spurred on by improving month to month comparisons in recent weeks.  Notably, manufacturing sector activity improved to an 8-month high, while confidence among consumers recovered to the highest in almost the same time period.

Given the overwhelming and rising optimistic sentiment, today’s results may be temporary as traders begin to shift their sentiment to a potential turnaround in the UK economy.  This should support the current sterling momentum – if at least for another session or two.

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The Grim Reality Behind the Unemployment Numbers

Since December 2007, 8,400,000 U.S. jobs have been lost.  The national unemployment rate has moved from a very manageable 4.9 percent to a risky 10 percent.  Not everyone is convinced we have seen the worst.  And, our lofty 9.7 percent national unemployment rate is not close to the whole or true status of the nation’s workforce or frustration. 

Add to the equation that the nation’s labor pool is expected to expand as the overall population continues to mount.  Workers not currently receiving benefits will also join in the search for new work and with the armed services looking to pare down, major factors can sway the employment rate lower yet. 

So, here we stand at 9.7 percent clear unemployment and millions more outside the system.  How do we bridge the gap?  How does the United States emerge from the Great Recession and begin to add workers? To simply maintain the current 9.7 percent rate, we need to generate about 85,000 new jobs per month.  This is after a February where the country actually lost 35,000 more jobs.

This is no time for recalculation.  This is a global crisis.  The world very much needs the American consumer back on his or her feet and none too soon.  It will take 292,000 new jobs per month to return unemployment to 5 percent.  Even then, it will take until 2015 to attain the 5 percent goal.

In the happy hiring days of 1998-2000, the U.S. could only produce 150,000 new jobs per month.  The United States has its work cut out for it and the road will not be easy.  It will necessitate plenty of government incentives new-age tax breaks and a new air of political cooperation that the current legislature seems incapable of rendering.

A Local View in The Sunshine State

A look at the State of Florida shows the weakness of the current job market.  Don’t be fooled by the new hires, 63,700 of which are temporary census jobs, and some easing in the construction sector.  These are government based or stimulus based efforts.  Simply put, the Florida economy is not moving.  Once heavily reliant upon real estate and construction activity, Florida’s real estate market and development market has been devastated.  More than 50 percent of homeowners are either underwater or getting there quickly.

As the stimulus funds begin to dwindle between 2010 and 2011, more out-of-work Floridians will have no choice but to return to the unemployment lines.  Adding to the woes of the local economies is the sudden rise in oil prices, the perception of a tighter grip from the Federal Reserve and the uneasiness over the health care turmoil.  The state is mired in political unrest, as virtually every political office is up for grabs.

Florida suffers a bloated 12.2 percent unemployment rate and without current stimulus offerings that rate would most likely exceed 14 percent.  True unemployment is believed to be in the 19-20 percent range.

Floridians are looking elsewhere for work.  With their homes underwater and job prospects bleak, a house here today can easily be empty and gone tomorrow.  Residents simply pack and leave, onto the next job opportunity.

Health Care on Rise

In a senior-oriented environment and boasting a year round climate edge, the world of health care is one pillar of light for the Florida economy.  BayCare Health System, which manages 11 area hospitals in Clearwater and employs about 18,000 workers projects adding close to 900 jobs in the near future. 

The hope is that the increased health care activity will lead to new Florida markets in research and development, technology and pharmaceuticals.  As hospitals convert from the outdated paper to electronic medical tracking, even more jobs will be necessitated. 

The Tampa H. Lee Moffitt Cancer Center & Research Institute expects to add 562 new workers to its existing 4,000 plus staff in 2010.  Converting to a service economy from such a vibrant construction based-economy will be challenging for the state and for other areas seeking to invent new niches. 

Florida expects change.  There is a huge volume of unsold residences needing to be allocated before any new housing boom could be expected. That turnaround could well be five or six years away.  Meanwhile, construction families pack their bags, and search for the next stimulus lift.

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FX Market: Australian Dollar Rises From The Depths; RBA Remains Accommodative

Plunging throughout the New York session, the Australian dollar seems to have found some solid ground heading into the European open. Incidentally, helping the currency’s gain is the newly released report showing a nice popup in economic growth for the country. Although expected to only show a mild 0.3 percent uptick for the second quarter, the actual figure jumped by 0.6 percent.

The improvement signals nothing but a turnaround for the land down under, similar to Japan, as the Bureau of Statistics release rose to double what analysts had been anticipating. Specifically, strong consumption fueled by stimulus packages and optimistic consumer and business confidence have led the recovery, which some still tout as teetering on the balance. However, with manufacturing rising for the first time in over a year and construction sector growth on the mend, it’s hard not to see the silver lining.

Nonetheless, the Reserve Bank of Australia is expected to remain accommodative in its monetary policy stance, leaving the overnight cash rate at the lowest level it has been in 49 years. But for how long? Taking a look at statements made by central bankers following the decision, the case for the rather loose monetary policy may not be as solidified as earlier expected now that improvements have surfaced. Given the recent improvements across the board, policy makers have changed their tone a bit, noting that inflationary pressures may be on the horizon.


Although the board decided that “the present accommodative setting of monetary policy remains appropriate for the time being”, the longer term probability “of inflation being persistently below the target now looks low.” The sentiment supports what market speculators have been betting on since the beginning of the summer – that rates are likely to rise by 175 basis points in the next 12 months.

The conviction was so that markets were pricing in a 50 percent chance of at least one move higher at the end of the year. And why not? Since the credit crisis abated (whether temporarily or permanently), investment continues to prop up the Aussie, which has skyrocketed since being bought up from the 0.6300 figure back in March. With more and more money entering the market on a yield searching basis, prices are expected to rise in tandem with underlying valuations.

As a result, even as the short term picture may be pushing for some intermediate downside in the currency pair, the longer term outlook continues to remain bright for the Aussie. Fundamentals continue to push for a higher valuation as we head into the final quarter of the year, as technicals point to some potential retracement from the recent runup. Longer term traders will likely do well to keep an eye on this carry currency favorite.

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