Saturday, July 17, 2010

Top 5 Graphs of the week - 17 July 2010

This week we look at some of the major data points out of the two economic juggernauts; China and the US. In particular we focus on China GDP, industrial production, and CPI for both China and the US, and the current path of the US trade balance.

1. China GDP
China, as expected showed signs of slowing down in the June quarter with year on year growth slipping to 10.3% from a blistering 11.9% in the March quarter this year. Year to date over year to date the economy grew 11.1%. The authorities appear to be reasonably successful so far at orchestrating a slowdown in order to prevent possible overheating. The September quarter is also likely to show a slower growth figure as the base period rises, and as industrial production continues to slow and global activity remains relatively subdued, however trade continues to recover.

2. China Industrial Production
On the Industrial production figures, China saw growth in industrial production slip to 13.7% year on year, compared to 16.5% in the previous month, but still up on the June figure of 2009, and still very much positive. But for the time being, and certainly the PMI points to it, Chinese industrial production is unlikely to grow at the same stellar rates that it enjoyed in the past, but the probable outcome is for slower growth, not negative growth...

3. China CPI
On the inflation front, the Chinese authorities claimed a small victory of sorts in keeping inflation below the 3% mark, with the figure coming in at 2.9% year on year, vs 3.1% in May. Inflation is still a risk factor in China, but the authorities are clamping down to prevent excessive appreciation in asset markets, and goods prices. For now it appears things are under control, but the inflation expectations are still relatively elevated.

The US CPI report gave potential confirmation for the deflation hawks, i.e. those who are cautioning about the risks of the US entering into a period of deflation (where price movements are negative). Headline CPI was recorded at 1.1% vs a 2% climb the previous month, with energy prices taking a dent. Core inflation however managed a slight increase at 1% vs 0.9% in the previous month. Certainly the near term outlook is for relatively subdued inflation in the US with the only upside risks coming when economic growth picks up and if the loose monetary policy gets properly transmitted through, and of course the specter of redundant capacity materializes.

5. US Trade Balance
The US also reported its trade balance this week, with the May deficit surprising; widening to -$42.3 billion, from -$40.3 billion. However there was some good news within the numbers with exports increasing from $148.8 billion to $152.3 billion; and imports at $194.5 billion (up from $189 billion). The increase in absolute volumes is somewhat promising from an activity perspective, also much of the worsening of the deficit was in the non-petroleum portion.


As a brief wrap-up, the Chinese economy is still chugging along, but the impact of the authorities' controlled slowing, and the loss of momentum of the recovery is starting to show through; both in the activity indicators, and in price levels. For instance the drop off in industrial production, growth, and stabilisation of the inflation rate, give tentative evidence for preliminary success.

The US on the other hand is also cruising a long in its recovery; but keep in mind that the reset of this year is going to be much harder than the first part of the year. On the inflation front the CPI figures showed further deceleration of the inflation rate, and the risks are relatively low for a near term resurgence of inflationary pressure.

So overall for these two powerhouses, the recovery is well under way, but there are plenty of risks floating around in terms of the sustainability of the recovery.

1. National Bureau of Statistics
National Bureau of Statistics
3. National Bureau of Statistics
4. Bureau of Labour Statistics
5. Bureau of Economic Analysis

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