Still Full Of It

COUNCIL OF ECONOMIC ADVISERS
WASHINGTON, D.C. 20502
March 9, 2007
WEEKLY ECONOMIC BULLETIN
FROM: GARY D. BLANK
SUBJECT: An Assessment of Current Macroeconomic Conditions
The employment report dominated this week’s news. Payroll jobs increased and the
unemployment rate dropped, but overall the number of hours worked declined. Stock markets
appeared to stabilize after the previous week’s losses.

Nonfarm payroll employment increased 97,000 in February, in line with market
expectations. The unemployment rate dropped from 4.6% to 4.5%. This good news was
tempered by a decline in the workweek so that total production-worker hours fell 0.3% in
February. As a result, hours worked in January and February are little changed from the
2006:Q4 average, suggesting slow GDP growth in the first quarter.

The trade deficit decreased to $59.1 billion in January from $61.5 billion in December.
During the past 12 months, exports increased 10.7%, while imports increased 2.7%. The strong
growth of exports suggests robust economic growth of our trading partners.

Productivity growth in the fourth quarter was revised down from an annual rate of 3.0% to
1.6%, reflecting the downward adjustment to output from last week’s GDP revision.
Productivity growth was also revised down in 2005 and 2006 due to the 750,000 upward
benchmark revision to payroll employment (announced last month). Productivity growth since
the business-cycle peak in 2001:Q1 has now averaged 2.8% at an annual rate, slightly above the 2.6% growth during the preceding 5-year period.

After sharp declines last week, the stock market stabilized this week. The S&P 500 climbed
1.1% through Thursday’s close, recovering some of its 4.4% decline last week.

The February gain of 97,000 payroll jobs was below the average of the preceding 12 months.
The trade deficit has steadily improved over the past 12 months.
International Market Developments

Retail sales dropped 0.9% in the EU in January, which could be an early signal of a weak
2007:Q1. Germany had a particularly weak month, with retail sales falling 5.1%. Meanwhile,
the European Central Bank raised interest rates by 25 basis points this week.
Sales at the major (America) chains fell 0.8% in February
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Some Who read my Blog on a regular basis know I predicted an increase in new Unemployment Claims of 18000 shortly before BLS release of its report. I find the Council of Economic Advisors also releasing their Report (the Above is seriously abridged by myself). It is obvious that I was far off the Mark, or is it? One may want to read this Post by Mish. Read the small print of the CEA report again after you read Mish. 374000 were dropped from the Labor Force, 39000 of the New Jobs were Government Jobs (almost twice the normal monthly Average), and the CEA report states Hours worked in January and February were little changed from 2006Q4, which was revised down from a annual GDP growth rate of 3% to 1.6%. The last part of the CEA report kept by myself gives a hint on the health of Retail Sales–both domestic and Worldwide. I am just trying to find Excuses for my poor Prediction. lgl