Job market soured in December

Some of the holiday-shortened week's reports suggested that 2008 may prove challenging for the economy. On the bright side, existing-home sales rebounded a bit and factory orders surged in November. Overshadowing these positives, though, were weak employment growth in December and continued downturns in the outlooks for the manufacturing and services sectors. The S&P 500 Index finished 2007 with a total return of 3.5%. For the week, the index fell 4.5% to 1,412 and the yield of the 10-year U.S. Treasury note fell 22 basis points, to 3.85%.

December Fed meeting minutes reveal concern over slowing growth

The minutes of the Federal Reserve Open Market Committee's December 11 meeting—at which the committee cut its target federal funds rate by 0.25 percentage point—showed that the nation's top bankers saw a slowdown in economic growth in the fourth quarter coupled with a deterioration of financial market conditions and consumer spending. The minutes also revealed committee members' concerns that economic growth would remain well below potential in 2008.

December job growth slowest in more than four years

Nonfarm payrolls showed their weakest growth in December since August 2003, according to the Labor Department. The economy added just 18,000 jobs, far below expectations of a 70,000 increase. The education, health care, business/professional, and leisure/hospitality industries continued to add jobs, while the construction, manufacturing, financial services, and retail sectors saw declines. For all of 2007, job growth totaled 1.3 million, far below the 2006 level of 2.3 million. The unemployment rate jumped 0.3 percentage point to 5.0%, the highest since November 2005—just after the Gulf Coast hurricanes. For 2007, unemployment averaged 4.6%, the same as in 2006.

Manufacturing and services activity continue slowdowns

Separate surveys released this week confirmed that activity in the manufacturing and services sectors continues to cool. In the Institute for Supply Management’s (ISM) survey of the manufacturing sector, the benchmark ISM Index registered 47.7. (A reading below 50 implies a contraction; above 50, an expansion.) It was the first time the index dipped below the 50 threshold since January 2007 and marked the sixth consecutive monthly decline. Subindexes for new orders, new export orders, production, and inventories all fell. Meanwhile, the institute’s survey of the services sector showed slightly weaker expansion than in November. The index registered 53.9, its lowest level since March 2007. Five subindustries reported growth, while eight showed contraction.

Existing-home sales better than expected

The National Association of Realtors announced that sales of existing homes grew slightly in November, rising to an annualized level of 5 million units from October's 4.98 million. However, the number of sales was off 20% from the year-ago level of 6.25 million. The inventory of homes for sale dropped slightly, from 10.7 months in October to 10.3 months. Although median sales prices rose from October, they were still 3.3% lower than a year ago. The national median sales price was $210,200, versus $217,300 in November 2006.

Higher construction spending defies expectations

Spending on U.S. construction projects grew a modest 0.1% in November, better than analysts' predictions. The private construction category dropped 0.7% as weakness in residential construction persisted. Compared with year-ago figures, private residential spending was 17.8% lower. Spending on private non-residential buildings—such as offices, churches, hotels, hospitals, and commercial facilities—rose 1.7% for the month. Public, or government, construction grew 2.5% in November, up 16.2% versus the year-ago level.

Factory orders surged in November

New orders for manufactured goods grew 1.5% in November, following October’s upwardly revised increase of 0.7%. November’s increase surpassed analysts' expectation of a 0.5% gain. Higher orders for nondurable goods continued to make the largest contribution as orders for durable goods declined just slightly, although much less than they had in the previous three months. A "core" reading of business investment in nondefense capital goods (excluding aircraft) decreased 0.1%, significantly better than October’s 3.0% drop.

The economic week ahead

The first full business week of 2008 will offer a very light serving of economic data. On tap are figures for consumer credit (Monday) and the U.S. trade balance (Friday).