Friday, January 15, 2010

Top 5 Graphs of the Week - 16 December

This week we look at US inflation, European inflation, US retail sales, Chinese international trade, and the Australian employment situation. The quick summary is that US inflation is picking up for a few key reasons, European inflation is slowly turning up but without any significant near term pressure, the recovery in US retail sales adds to an interesting picture for the US consumer. Meanwhile in China imports and exports are showing a clear recovery with some interesting implications, and the strong Australian economy seems the place to be in the developed world for jobs.

1. US Inflation: ticking up
The US showed further signs of a pick up in inflation with the release of the December figures. Headline inflation (in part boosted by a lower base period i.e. because it's an annual % change) was recorded at 2.7% while core firmed up it's turnaround with an upward move of 1.8% vs 1.7% previously. The drivers of this turnaround in inflation are probably a number things, first of all back when the crisis was at its peak a lot of retailers would have had to cut prices to boost sales - so some part of it is normalisation of prices. Another aspect is the recovery of commodity prices, such as energy (impacting on headline inflation). Then there's the loose monetary and fiscal conditions; some may suggest that these aren't working through yet as easy money conditions aren't expressing as new loans, whether or not this is true will play-out on the chart below during this year.

2. European Inflation, slowly reviving
The EU released its December inflation figures, revealing a further pick-up in headline rates (thanks again to the commodities boom and bust), while core inflation showed a tentative bottoming out with 1.1% vs 1.0% in Nov. The European Central Bank also released its statement on monetary policy this week where it ruled out any near term inflationary pressure, noting that rates remain appropriate for keeping inflation below the 2% target in the near to medium term. Given that the economic outlook for Europe remains relatively subdued with risks to the upside and downside reasonably balanced, a view of inflationary pressure not being excessive is probably about right.

3. US Retail Sales: a gradual recovery
The United States of America released retail sales figures for December 2009, the month on month change was a small negative while the yearly change was about 5%. This is again symptomatic of the severe drop-off around this time last year. But to be sure the trend is that retail sales are recovering, if you look at the actual values you can see a clear upward trend from the bottom in early 2009. The recovery is there but it is gradual. Two other data points to note for this one are: a. US consumer confidence is picking up and showing its usual relationship of leading retail sales; b. US consumer credit is falling on an annual % basis while retail sales are rising. What does this say? US consumers are slightly more confident, spending slightly more, while also shedding a bit of debt...

4. Chinese International Trade: up and up...
Last weekend China released its trade figures which showed an increase in the momentum of their trade recovery. The key to note is that while exports were up strongly, so too were imports. This is important to note: on the one hand the increase in exports shows a pick up of global demand (even if it is stimulus/inventory cycle driven), while the growth in imports shows China starting to drive demand and may herald an era where China becomes a real driver of global growth. The only other thing to add is that it signals a return to normal, which means that global imbalances are unlikely to abate significantly in the medium term.

5. Australian Jobs Boom

Australia is the place to be for jobs. Australia has shown a clear peak in its unemployment rate, coming in at 5.5% in December vs 5.6% in November. If that's not enough, it recorded the 4th consecutive month of positive job growth. Australia is doing pretty well, it only experienced one quarter of negative growth during the 'recession', benefiting from a fundamentally strong economy, further development of mineral and energy resources, dealings with China, and a strong and relatively stable banking sector. December's data will probably add to the case for the Reserve Bank of Australia to increase the cash rate another 25 basis points, having already hiked 75 basis points (up from an 'emergency settings' rate of 3.00%).

To briefly summarise and tie some of the themes from this week's edition together. The picture for inflation is that conditions are there that might usually cause inflation to overheat, but the economy and financial system are still recovering. That's not to say that inflationary pressures aren't there, but some countries will start to see accelerating inflation soon. Meanwhile in the traditional driver of global economic growth, the US, the consumer is starting to recover, but is currently behaving slightly differently. While confidence is up and spending has started to recover, the priority is rebuilding balance sheets, so spending and credit growth are probably both going to be somewhat subdued in the near term.

On that note the new driver of global economic activity, China, is showing a reasonably strong recovery in both imports and exports. This presents positive signs for the global economy on both fronts; however also points to a continuation of global imbalances. Meanwhile down in Australia things are ticking along strongly, thanks in part to China. Australia continues to prove itself the strongest economy in the developed world with a healthy job market, and while others are considering how to make monetary policy more stimulatory, Australia is on the tightening path. So overall you could say the main theme is that emerging and developing economies, to the benefit of western powers, are leading the way back to prosperity.

1. US Bureau of Labour Statistics
2. EuroStat & ECB &
3. US Census Bureau
4. Trading Economics
5. Australian Bureau of Statistics

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