Income Strategy November 2, 2007:

The economic news this week has been a real mixed bag US consumer confidence took another hit this month as concerns regarding economic growth and higher energy prices start to hit home. Yet the employment numbers for both the US and Canada were better than expected. The US dollar is getting clobbered as more financial companies are revealing much larger exposure to the subprime and Asset Backed Corporate Paper markets than previously believed.

Stats Canada released the Labour Force Survey for October and job growth was well ahead of expectations. The Canadian economy added 63,000 new jobs for the month, which lowered the unemployment rate to a 33 year low of only 5.8%. The factory sector was one of the few losers with another 3,500 jobs lost, this before the announcement by Chrysler of 12,000 layoffs in North America, so far this year the sector has lost over 63,000 jobs mostly in the Southern Ontario region. The Canadian Autoworkers Union is becoming increasingly vocal regarding calls for the government to do something about the exchange rates. Hopefully this will fall on deaf ears as the Central Bank should continue to remain independent of the political process as much as possible otherwise we will all be in trouble.

The US nonfarm payroll data was much better than expected with 166,000 new jobs created in October more than double the 80,000 economists had forecast. The unemployment rate remained at 4.7% while the participation rate fell to 65.9% from 66.2% as more people entered the work force.

The US consumer confidence index issued by the Conference Board has taken a hit falling from 99.5 in September to 95.6 in October, economists had been expecting 99.0. The main reasons for the decline in confidence are attributed to the continued decline in home prices which were down another 0.8% in August making it the 14th consecutive monthly decline. The expectation for higher energy prices also reduced consumer confidence as fears of further gasoline and heating oil price increases dampen the consumer enthusiasm.

The Federal Reserve reduced interest rates by 0.25% to 4.5% as most economists had expected. The statement released by the Fed indicated that this may be the last reduction for a while as inflation continues to be a cause for concern. The recent strong job growth and higher energy prices are not likely to change that view in the short term.