The US dollar and Japanese yen were mostly weaker at the start of the week as the G7 statement failed to yield biased comments on the greenback, while surprisingly strong US data helped to incite risk appetite. Indeed, comments from the G7 meeting were not so different from what we’ve seen in recent months, as the group simply said that they’ve “started to see signs of a global economic recovery and continued improvement in financial market conditions,” but that they “will keep in place our support measures until recovery is assured.” Furthermore, the G7 repeated that “excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability” and that they “welcome China’s continued commitment to move to a more flexible exchange rate.”
In US news, conditions in the services sector, which accounts for approximately 90 percent of the economy, appear to be improving as the ISM non-manufacturing index rose more than expected to a reading of 50.9 in September from 48.4. With 50 being the point of neutrality, this was the first sign of expansion in the sector since August 2008 and the highest reading since May 2008, giving credence to claims that the US emerged from recession during Q3. However, the employment component remained below 50 for the 17th straight month, suggesting that job losses continue to plague the sector.
This was already made clear on Friday, as the release of US non-farm payrolls (NFPs) was disappointing, posting at -263,000 in September, compared to forecasts for a reading of -175,000. This represented an acceleration in the pace of job losses, as NFPs dropped by a revised 201,000 in August, while the official unemployment rate rose to 9.8 percent - the highest since June 1983 - from 9.7 percent. Even worse, the U-6 measure of the unemployment rate, which includes people who have part-time jobs but are seeking full-time work, as well as discouraged people who have given up looking for work, rose to a whopping 17 percent in September from 16.8 percent. While it’s difficult to put this series into historical context given that it only started in 1994, it’s clear there’s a large proportion of consumers in the US that are suffering financially from a lack of full-time jobs. Thus, going forward, indexes like ISM non-manufacturing could show further improvements, but a continuation of the rapid ascent we’ve seen in recent month may not be feasible.