December’s jobs report reaffirmed that the US labour market is much more robust these days. There was much to like in this report: 1) Non-farm payrolls rose by 412K in the final quarter of 2011, after a 441K rise in Q3; 2) household employment rose by another 176K last month, a cumulative increase of 1.4m since the middle of last year; 3) the unemployment rate fell further, to 8.5% in December – at the end of 2010, the jobless rate was 9.4%; 4) aggregate hours worked, which correlate strongly with GDP growth, rose at an annualised 3.0% in the three months ended December; 5) the number of unemployed has fallen by 1m to 13.1m in the past six months; 6) the median duration of unemployment is heading in the right direction. Although definitely encouraging, the jobs situation for many is still extremely trying. Household employment is still some 6m below the peak reached at the end of 2007; more positively, employment is now 2.5m above the trough reached at the end of 2009. Also, the average duration of unemployment is still above 40 weeks. With most of Europe’s economies cratering, the world economy is incredibly fortunate that the largest one, the United States, is showing some real resilience. For the dollar, it represents a further fillip, at a time when investors and traders continue to abandon the euro.

Another critical Merkozy meeting. After last week’s collapse in the share prices of many of the major banks in Italy and Spain, and the continuing pressure on the single currency, there will be plenty for German Chancellor Merkel and French President Sarkozy to discuss when they meet later today. As always these days, they have a full agenda – up for further discussion is exactly how this new fiscal pact is going to work, how to respond to the implosion in the Spanish and Italian banking systems, and a possible financial transactions tax. The latter will clearly be of considerable interest to the British Prime Minister, who used his veto last month after failing to secure guarantees for the City. Italy’s new Prime Minister, Mario Monti, flew to Paris on Friday for talks with Sarkozy on Italy’s precarious situation.

UK house prices still falling. It may be gradual, but it is clear that UK house prices remain under downward pressure. According to HBOS, average house prices fell another 0.9% last month to the lowest level since mid 2009; over the past six months, house prices have fallen 2%; since the peak in mid 2007, the average price of homes has dropped by just under 20%. Nationwide record a similar pattern – house prices were flat through the second half of last year, and down by 11% from the peak of 2007. Rightmove registered a decline in asking prices of 2.7% in the final month of 2011, after a fall of 3.1% in November. The government’s own series (published by the Department for Communities and Local Government) suggest house prices are down by 7% from their peak in early 2008. Most commentators predict UK house prices will fall further this year. The UK would not be alone – most advanced economies are experiencing similar pressures.

Swiss deflation deepens. Notwithstanding the claims from SNB chief Hildebrand that it is temporary, deflation appears to be deepening in Switzerland. According to figures released on Friday, consumer prices fell by another 0.2% last month, the sixth decline in the past seven months. In the second half of 2011, prices fell at an annualised rate of 2.4%, which ought to alarm Swiss policy-makers. At last month’s quarterly meeting, the SNB passed up the opportunity to lift the 1.20 ceiling on EUR/CHF, despite voluble demands from exporters who claim that the currency remains extremely overvalued. It remains a very tricky situation for the SNB – the euro is hardly a stable currency these days, and so continuing to commit to purchasing unlimited quantities of a suspect single currency risks undermining credibility, not to mention unnerving their shareholders. Also, the economy looks set to fall back into recession this year, and deflation appears to be setting in. As Hildebrand suggested last month, the SNB remains in ‘permanent crisis mode’.

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