City National Bank: Business - International

The dollar is broadly trading lower against major currencies with the exception of the Japanese yen on the back of a better-than-expected August nonfarm payrolls. Economists forecasted losses of 105,000 jobs and the unemployment rate rising to 9.6% as a result of slower economic growth, weaker consumer confidence, slow auto sales, continued decreases in the number of government census workers, and an anemic back-to-school retail season. However, the Bureau of Labor Statistics announced this morning that 54,000 jobs were lost with the unemployment rate rising to 9.6%. Traders zeroed in on the fact that private-sector payroll employment continued to trend up and contributed 67,000 new jobs. Average hourly earnings increased by 6 cents-a 0.3% rise-to $22.66. In addition, revisions to past months' NFPs were positive; June's number was revised from -221,000 to -175,000 while July was revised from -131,000 to -54,000. Equity futures immediately gapped up on the report and the dollar traded sharply lower against growth-linked currencies.

Despite Wall Street's euphoria, the number is more mixed upon closer examination. The 67,000 new private-sector jobs are not even enough to keep pace with the growth of the workforce. The bottom-line is we are still falling behind, albeit at a slower pace. This is evident in the U6 underemployment rate, which rose from 16.5% to 16.7%. As we have noted before, the U6 data is a much truer representation of the unemployment rate. Construction employment contributed an astounding 19,000 jobs. Without a doubt, this is a seasonal phenomenon and cannot be sustained into the next few months. In addition, we anticipate state and local governments to continue shedding jobs over the next few quarters as a result of fiscal tightening, netting out much of the employment gain in the private sector.

Meanwhile, Chinese Services PMI remained unchanged at 60.1 in August. The strong reading is partially a result of stronger demand from rising wages and is helping to offset weakness in industrial production from monetary tightening. Again, it seems to us that the Chinese government is comfortable with its current policy direction of allowing wages to rise to tilt the economy towards private consumption. In Japan, Prime Minister Naoto Kan is battling for leadership of the DPJ with Ichiro Ozawa. Mr. Ozawa has long advocated for more fiscal spending and monetary easing. Should the polls show that he is leading by a large margin, we may finally see some relief to the JPY rally. Have a great day and enjoy the long weekend. Please note that City National Bank will be closed on Monday for the Labor Day holiday and we'll talk to you all again on Tuesday.

The information in this report was complied by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader's specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

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