It seems I was wrong about the likely behaviour of China with respect to Iran. China and Japan have reduced their imports of oil from Iran, although I do not know by how much. In addition, the European Union has agreed in principle to halt oil imports from Iran altogether. These three actors account for around half of Iran’s oil exports. Depending on how much China and Japan actually reduce their imports from Iran, the country might actually have a problem selling all of its oil — although whether that will in fact be the case remains to be seen. There is the further question of whether sanctions alone, without the threat of military force in the background, will be enough to change Iran’s behaviour. They may cause the Iranian people to rally behind their government, and, as Nightwatch points out, similar measures have not worked at all in the case of North Korea.

Barack Obama has announced a move towards a “smaller and leaner” military with more focus on the Asia-Pacific region. This is in the context of cuts to the defence budget. The number of troops in Europe will be reduced (although it is not clear how much money this will save, as they will have to be housed in the US and conveyed abroad for training exercises). Growth in defence spending added 0.37% and 0.27% to US GDP growth in Q2 and Q3 of 2011 respectively, but its contribution looks set to turn negative (although I do not have details of the timing). On the other hand, it seems that various US states are bringing their budgets under control; Calculated Risk estimates that the fiscal drag from state and local government may come to an end in Q2 2012. Of course, this does depend on tax revenues and hence the state of the economy.

FT Alphaville has an interesting piece on seasonal adjustment. This has been an issue in the economic world since the financial crisis — people realised at the time that the large economic drawdown in the winter of 2008-09 would upset the calculation of seasonal-adjustment factors, flattering economic data in winter and depressing them in summer. Alphaville highlights some an attempt by Goldman Sachs to quantify this effect for the ISM PMI; apparently seasonal adjustment has added 2-3 points to this number in the latest month. Adjusted for this effect, the ISM is still moving upward, but not as quickly as the headline number suggests. All seasonally-adjusted data are likely to suffer the same problem.


Eurozone industrial new orders 1.8% d.e. Oct.
ADP payrolls 325k b.e. Dec. This was a big number. ADP is not a great predictor of non-farm payrolls but there is some relationship between them.
Initial claims 372k ~a.e. Fell back after last week’s jump, keeping the downward trend intact.
ISM non-manufacturing PMI 52.6. d.e. but an improvement on last month.
UK Halifax HPI -0.9% Dec.
Swiss CPI -0.2% MOM d.e. Dec.
Eurozone retail sales -0.8% d.e. Nov.
Eurozone unemployment 10.3% a.e. Nov.

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