In this week's edition there are some key updates from around the globe. First up is a look at US consumer credit, followed by an update on EU unemployment, we then look at some data from the ISM PMI before noting recent policy settings of the Bank of England, and to finish it up there's a review of international trade data for New Zealand and Australia.
While there's no bridging theme for this edition some key points are; credit growth remains weighed down by challenging economic conditions and deleveraging; unemployment is still a problem though it may improve in the near term; activity is picking up in some areas thanks to the inventory cycle; monetary conditions are still very/historically loose, and developed nations are only very slowly seeing a turnaround in trade.
1. US Consumer Credit
The US consumer credit boom continued to unwind in November, dropping off by a record $17.5 billion in November. The drivers of this are likely to be a combination of attrition (due to consumers paying off debt and not replacing it and/or being unable to replace it due to credit availability and tightening of criteria -and- of course the ugly side where the consumer can't/wont repay and the loan gets written off) and falling credit quality/capacity (consumers facing little to no wage growth, higher unemployment, find it difficult to obtain new credit). I suspect the main driver is the attrition factor, driven a lot by the whole "deleveraging" phase as people look to restore balance sheets, and by the bad-debt element. Looking at the chart below, I think it's also interesting to note the proportion of revolving/non revolving loans over time.
2. Euro Area Unemployment Rate
An employment report on the EU showed the unemployment rate there reaching 10%; a level not seen in 11 years. The EU also released statistics confirming Q3 2009 growth of 0.4% q/q (or -4% year on year) last week. The number is lifted by members such as Spain and Ireland who are still in deep financial and economic trouble, as companies are still shedding jobs to try and control costs. The high level of unemployment will weigh on consumer spending and confidence, but at the same time there has been tentative growth signs in the EU, with the likes of Germany and France recording their 2nd in a row quarter of positive growth in Q3 last year. The near term outlook for the EU is for a subdued bounce-back in 2010-11.
3. US ISM Purchasing Managers Index
The core manufacturing PMI index stayed above the 50 point mark and touched levels not seen in years. As the chart below shows, a lot of it is being boosted/driven by a strong recovery in the new orders index which is a leading activity indicator. The ISM PMI is a very useful set of indices at the moment as you can see by cross checking the components that the inventory cycle is very much alive and well. The key is for the short-term impulse of the inventory cycle to flow on to more activity, i.e. a sort of jump start or wind-up for the economy. So watch this index over the next half year for signs of a passing over of the torch from inventory cycle to sustained activity.
4. Bank of England Monetary Policy
The Bank of England met again last week to set policy. As expected they kept the rate at 0.5% and kept the limit for the Asset Purchase Plan at GBP 200 billion. The BoE provide little information in their policy announcements but did mention the following: "The Committee expects the announced programme to take another month to complete. The scale of the programme will be kept under review.". The minutes of the meeting will be release on the 20th of January. This will be an interesting area to watch over the next year or so as activity picks up slowly in the UK, and it could well be that activity will remain very subdued there while inflation increasingly picks up, thanks in part to these monetary conditions.
5. Australasian Trade Stats
Australia released its trade statistics 2 weeks ago and NZ last week. Both countries reported slightly improved trade deficits as imports fell faster than exports. As seen below on a year on year % change basis both economies are still in the bottoming out phase. Both countries would gain strongly if they could boost exports, the trouble is they both tend to be the top of the list for the long side of the carry trade, and thus tend to have strong currencies. On the other hand both countries have strong commodities exposure (Australia more minerals, NZ more soft/agri commodities), and will over time gain from increasing volumes and prices.
To conclude this update, the charts above and analysis around them should add a little to your overall thinking about the global economy. The comments should lead you to think of some areas to watch that will impact how the recovery unfolds and ultimately how markets will be impacted. For instance monetary conditions remain loose in a lot of places, this has implications for how inflation tracks and around the eventual tightening.
On the inventory cycle there's the key area to watch of whether activity will be sustained after the initial burst. And then there's credit growth (for more on credit see my article on US bank lending), and international trade; credit growth will probably coincide with a more sustainable recovery, and international trade will be a vital element for recovery as well as giving clues to how global imbalances evolve.
1. US Federal Reserve http://www.federalreserve.gov/econresdata/releases/statisticsdata.htm
2. Eurostat http://ec.europa.eu/eurostat
3. US ISM http://www.ism.ws/ISMReport/index.cfm
4. Bank of England http://www.bankofengland.co.uk/monetarypolicy/decisions.htm
5. Australian Bureau of Statistics http://abs.gov.au/ & Statistics New Zealand http://stats.govt.nz
Article Source: http://econgrapher.site1.net.nz/top5graphs10jan.html
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