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Investment Research — General Market Conditions

06 August 2010

Flash Comment
US: Job recovery remains slow
 Total payrolls declined again in July as Census related layoffs continued to
Key figure (Month)
weigh on the headline and private job growth was modest.
Act Con DB Prv (Rev)
 A rebound in hours worked and wages offsets the negative impact on household
Payrolls -131 -65 -70 -125 (-221)
income from slow job growth.
- census -143
 Going forward, we expect the job market to gradually reaccelerate as financial - private 71 90 80 83 (31)
conditions had eased and the economy is headed for a soft landing. Net rev -97
Details - private -34

The July employment confirms the recent evidence that economic growth has slowed Unemp. 9.5% 9.6% 9.6% 9.5%
over the past three months. Since the strong 150-250K readings in the April – March Source: Bloomberg and Danske Markets
period the pace of private hiring has downshifted significantly to an average of 51K over
the past three months. On top of this temporary hiring, which is usually a reliable led for
future permanent hiring printed its first decline since September 2009 - a signal which is a Sluggish growth in private payrolls
somewhat worrisome. 400 400
1000 persons 1000 persons
200 200
The unemployment rate was stable, but this was only due to a 181K decline in the labour
0 0
force. The household survey showed that the economy lost 159K jobs in July following a Private payrolls
-200 -200
301K decline in June and a 35K decline in May. Even when adjusted for census hiring the
-400 -400
household survey looks soft. -600 -600

-800 -800
However, it was not all bad news. Total private working hours rose 0.4% m/m, which
03 04 05 06 07 08 09 10
more than offset the setback in June. Further average hourly earnings was up 0.2% m/m.
Hence, the labour income proxy continues to grow at around 5% AR, which should leave Source: Ecowin and Danske Markets

room for households to expand consumption despite the lacklustre hiring.

Outlook and assessment Unemployment trends slowly lower
We continue to suspect that the tightening of financial conditions and rising uncertainty 11 11
% %
during late spring and early summer, have made businesses more reluctant to hire and 10
9 9
expand production. Another possibility is that the weakness has been amplified by the 8 8
usual statistical volatility in this report. Still there is nothing in the pattern of private 7 7
6 6
payrolls over the past 6 months that looks different compared to the previous expansion,
5 5
where private job growth slowed to the current level on several occasions. 4 4
3 3
That said, the job market has been much weaker than expected over the past three months 00 01 02 03 04 05 06 07 08 09 10

and a further slowdown from the current level would be very worrisome. The softer
Source: Ecowin and Danske Markets
labour market has left the economy less robust given the slowdown in the leading
indicators that we expect through the second half of the year.

We still find it most likely that the job market will gradually reaccelerate during H2.
Financial conditions have improved and we continue to forecast a soft landing in the Senior Analyst
economy. With a very stretched level of productivity we believe that even moderate Peter Possing Andersen
+45 45 13 70 79
growth around trend will be sufficient for businesses to increase the pace hiring.

Senior Analyst
Signe Roed-Frederiksen
+45 45 12 82
Flash Comment

Slower job growth – particular in the service sector A weak trend in the household survey

300 300 500 500

1000 persons Private service sector 400 1000K 1000K 400
200 (3m average) 200 300 300
200 200
100 100
100 100
0 0 0 0
-100 -100
-100 -100 -200 -200
-300 -300
-200 Private goods producing -200 -400 -400
Household survey
(3m average) -500 -500
-300 -300
-600 -600
-400 -400 -700 -700
-800 -800
-500 -500 -900 -900
05 06 07 08 09 10 03 04 05 06 07 08 09 10

Source: Ecowin and Danske Markets Source: Ecowin and Danske Markets

Hours worked recovers... ... and remain in expansion territory

0.75 0.75 10.0 10.0
%m/m Hours worked total, private %m/m % chg. over 3 months, AR
7.5 7.5
0.50 0.50 Highest since 1997:9
5.0 5.0
0.25 0.25
2.5 2.5

0.00 0.00 0.0 0.0

-2.5 -2.5
-0.25 -0.25
Private payrolls -5.0 -5.0
-0.50 Avg. weekly hours, private -0.50 Total hours worked, private
-7.5 -7.5
Payrolls, private
-0.75 -0.75 -10.0 -10.0
Aug Oct Dec Feb Apr Jun 96 98 00 02 04 06 08 10
09 10

Source: Ecowin and Danske Markets Source: Ecowin and Danske Markets

1M diffusion index not that bad – indicates that slowdown

Income proxy continues to grow at a healthy pace
may be concentrated in specific businesses or sectors
12.5 12.5 70 70
3 mth chg.,% AR Semi ann. % AR Index Index
10.0 10.0
60 60
7.5 7.5
50 50
5.0 5.0

2.5 2.5 40 40

0.0 0.0 1-month diffusion index

30 private payrolls 30
-2.5 << Payrolls income proxy (private sector) -2.5
20 20
-5.0 NIPA compensation of -5.0
employees >>
-7.5 -7.5 10 10
86 88 90 92 94 96 98 00 02 04 06 08 10 03 04 05 06 07 08 09 10

Source: Ecowin and Danske Markets Source: Ecowin and Danske Markets

2| 06 August 2010
Flash Comment

This research report has been prepared by Danske Research, which is part of Danske Markets, a division of
Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority. The authors of
this research report are Peter Possing Andersen, Senior Analyst and Signe Roed-Frederiksen, Senior Analyst.

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Calculations and presentations in this research report are based on standard econometric tools and methodology
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3| 06 August 2010