US unemployment reaches 26-year high

The economic headlines over the past week were largely focused on the US employment situation.

In the US, employers slashed a higher-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8%, which was the highest rate since June 1983. Analysts had expected that non-farm payrolls would drop by 180,000.

These figures continue to fuel fears that a weak labour market could undermine an economic recovery. Meanwhile, US housing data was firmer than expected with the Case-Shiller index recording a third successive monthly increase in house prices, cutting the annual decline to 13.3%. Even pending home sales data were stronger than expected with a further 6.4% increase for August, the sixth successive monthly increase.

In Europe, Eurozone data continued to suggest a gradual improvement in conditions, as German unemployment was better than expected with a 12,000 seasonally-adjusted decline in August. Elsewhere, Eurozone inflation was slightly weaker than predicted, with a flash consumer inflation reading of -0.3% for September compared with expectations of -0.2%. Meanwhile, a European Commission monthly survey showed that economic sentiment in the 16 countries using the euro rose to 80.6 points in August from 76 in July, the fifth straight improvement from a trough of 64.6 in March.

In the UK, the economy shrank less than previously estimated in the second quarter of this year, due in part to a better-than-expected performance by the construction industry. In fact, according to the Office for National Statistics, the country's GDP contracted 0.6%, which is less than the 0.7% estimated a month ago.

On a negative note, the Purchasing Managers' index for manufacturing was weaker than expected as it dropped to a reading of 49.5 for September from 49.7 the previous month.

This article has been prepared by Bank of Valletta plc, which is licensed to conduct investment services business by the MFSA, for your general information only. This information is not a solicitation or offer by the bank to acquire or sell securities. Nor does it constitute any form of advice by the bank. Appropriate advice should be obtained before making any such decision. Past performance is not necessarily a guide to future performance and the value of your investments may fall or rise.