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REVIEW OF LAST WEEK'S DATA

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Figures published in the UK this week show manufacturing output down 0.7% in December. This is much weaker than ex...
Figures published in the UK this week show manufacturing output down 0.7% in December. This is much weaker than expected and prompted some speculation about a further monetary easing, (though the chancellor and the governor left interest rates unchanged following Wednesday's monetary meeting).

With companies continuing to reduce stock levels, and with weak economic conditions persisting abroad, the manufacturing sector is likely to remain subdued for some time to come.

In contrast, the favourable outlook for the consumer sector looks set to remain, with today's CBI Distributive Trades survey reporting buoyant sales last month. Improved conditions in the housing market appear to have had a particularly positive effect, with volumes rising most strongly in the furniture & carpets, and durable household goods sectors. One negative aspect of the survey is a sharp rise in the expected stock adequacy. However, if sales do meet current high expectations, it is difficult to see how stocks could build up that rapidly.

The headline level of German unemployment rose almost 370,000, to a record high of 4.16 million last month. However, the bulk of the increase can be accounted for by seasonal factors (such as cold weather and the loss of Christmas retail jobs). Stripping these factors out, the adjusted rise of 59,000 was actually 10,000 less than the increase in December.

The West of Germany looks more robust than the East. Unemployment rose an adjusted 17,000 in the West against 42,000 in the East. Vacancies rose in the West for the third month running, suggesting that job prospects could begin to improve. The Bundesbank has long argued that the deterioration in the labour market reflected the high basic pay rises in early 1995, so a further unemployment rise is unlikely to be the only factor behind a decision to cut interest rates further.

The US trade deficit dropped to $7.1bn in November, signally a significant improvement in the US external position, and marking the smallest shortfall since March 1994. November was the fifth consecutive month of deficit reduction from a peak of $11.4bn last June. This latest data has reinforced expectations of a sustained dollar appreciation in the coming months.

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