Friday, April 30, 2010

Top 5 Graphs of the Week - 1 May 2010

This week we look at Q1 GDP results from the US and Republic of Korea, then we look at an interesting chart on US housing and confidence, then a brief snapshot of Japan with unemployment and deflation numbers, and finally a monetary policy review with emerging markets taking the spotlight.

The US unsurprisingly pulled through some growth again in the first quarter of 2010 with an annualised 3.2% (i.e. actually 0.8% q/q) against consensus for 3.4%, and previous of 5.6%. Year on year growth moved up to 2.5% vs 0.1% in Q4 09. There are some interesting signs in this result compared to the previous one; December was all about the inventory cycle, but this quarter we're seeing strength in consumption (3.6% vs 1.6%), and continued strength in real business investment i.e. equipment and software as opposed to buildings (13.4% vs 19%). But net exports were down with imports growing faster than exports, also government consumption expenditure dropped off again. So while the figure came in slightly under there are some vaguely positive signs in there for now...

2. South Korean GDP
As mentioned the other day South Korea announced its GDP results with a solid 1.8% q/q growth rate in Q1 2010, beating consensus for 1.5% growth, and 0.2% in the previous quarter placing it up 7.8% on an annual basis. The Korean manufacturing sector saw strength driven by the electronics sector (likely a product of an export recovery, partially driven by restocking, and partially by normalization of demand for what have now become staples). It also noted strength in civil engineering driven construction (stimulus?), so a pretty typical pattern as far as economic recoveries go at the moment. Overall a good result, and well, a pretty good outlook too.
3. US housing market and consumer confidence
I also made a more detailed update on US housing and confidence earlier this week, but here's an experimental chart I threw together. It shows confidence tracking against the Case Shiller house price index. Now I know the short-comings of doing year on year percent changes when there are large variances e.g. at the peak of the crisis/crash, but it is an interesting relation. It's pretty obvious in terms of causality - house price levels are of course going to impact on consumer confidence; that's probably the main source of cause... but then there will be some reverse causality from consumer confidence as higher levels of confidence may signal a higher willingness and ability to buy houses and thus result in higher demand... I'll be tracking this chart over the year as more data comes in, early days to draw significant conclusions as yet.

4. Japanese unemployment and in(de)flation
Japan is continuing its struggle with deflation, in March Japan saw its 14th month of deflation, with CPI down -1.2% y/y vs -1.1% in Feb. Meanwhile in unemployment, after hitting a high of 5.6%, the jobless rate fell to 4.9% but then basically went sideways and up slightly in March with 5.0%, as employers are still reluctant to hire in Japan in spite of an export-led recovery. Thus things aren't looking too rosy at the moment in Japan, especially when you consider the fiscal situation (and particularly in that sense when you think about what's going on elsewhere in the world on the fiscal front). Interestingly, the Bank of Japan governor at the monthly meeting proposed a new venture capital type funding scheme as it runs out of options for combating deflation and encouraging growth.

5. Monetary policy review
On the monetary policy front this week it would have been boring were it not for 2 of the BRICs. The US held at 0.25% and signaled no change, the Bank of Japan held at 0.10% and signaled no change, and New Zealand held at 2.50% but signaled for an increase in the very near term. On to the emerging markets, Brazil lifted the selic 75bps to 9.50% in order to stem rising inflation and concerns about overheating as the Brazilian economy makes a strong recovery. Meanwhile Russia cut the refi another 25bps to 8.00% with the intention of stimulating loan growth, opting to prioritize sustaining growth over stemming inflation.


So this week we had another two positive GDP results, with the South Korean economy showing much more health and promising signs than the US, but positive on both accounts nonetheless. In terms of the "where to next", the answer would be tentatively more growth. But as always, in these times the caveat of "risks remain" must be firmly noted; there are still significant potential global risks that may spillover and derail the global economy, there's also the chance that the US economic recovery doesn't gain significant wind. But all in all, the most likely scenario is for more growth, but almost certainly sub-trend, in this sub-dued recovery.

On Japan, well, there is upside there, but when you compare it to the US, there's probably a higher degree and probability of risks materializing to derail its fragile recovery. But it is still the 2nd/3rd largest economy, and a technological leader, they may yet pull through, but a key driver of that would be a continued and strong recovery in international trade.

On monetary policy and exit strategies, Brazil certainly stepped up its stimulus exit - and rightfully so. But with Russia, the opposite path was taken, but potentially rightfully so also. As for the rest, they're probably on the right path, New Zealand will almost certainly increase rates in the next month or two. So in terms of exit strategies, the balance of 'too late' and 'too soon' is being finely weighed, and as we're seeing; while the stimulus (and recession) was synchronized, the exit (and recovery) will vary in degree and timing.

1. US Bureau of Economic Analysis
2. Bank of Korea
3. Conference Board Standard & Poors
4. Trading Economics
5. Various central bank websites

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