Friday, January 7, 2011

Top 5 Economics Graphs of the Week - 8 Jan 2011

This week we examine the US PMI results, US nonfarm payrolls, US equity and bond mutual fund flows trends, EU inflation and growth stats, and a review of monetary policy developments over the past week.

The US had two good results, the manufacturing PMI increased to 57 from 56.6 (driven by strong new orders, production, and prices), and the non-manufacturing shot up to 57.1 from 55 (driven by new orders, business activity, and prices). The new orders part of the results was a cracker, with both sub-indices above 60), showing there may be a bit of momentum to come. Another interesting aspect of the releases was the increase in the price indexes: inflation? And the other notable was a small decline in both of the indexes' employment sub-indexes, which lines up with the good but not great NFP figure below.

2. US Nonfarm Payrolls
As noted, the figure came in a little lower than expected, and not really high enough to pull down the real unemployment rate. The figure was 103k jobs added, + upward revisions in Nov/Oct of about 70k. The unemployment rate went down to 9.4%, but not a good thing because it was participation rate driven (i.e. people who are becoming discouraged and pulling out of the labor force). So a good but not great result, this year should bring more job growth than last year as the recovery picks up (or as conditions normalize).

3. US Mutual Fund Flows
The story of 2010 mutual fund flows was a steady stream of net inflows into bond funds, with pretty lackluster flows for equity funds. But the worm may be turning, November saw the worst month in the year for bond fund flows, and a slight positive for equity funds. What's more, the weekly data through December (Dec monthly data not out yet) showed about -13 billion for bonds and about positive 5 billion for equity fund flows. So does this herald a trend of re-risking? Will we start to see the money go round reverse? ... Will equity flows beat bond flows this year? and of course what will this mean for the stock market?

4. EU Growth and Inflation
The EU finalized its GDP numbers for Q3, and released the first estimate of inflation for December, with both results being steady. It's likely both the GDP growth rate and inflation rate will muddle along at a subdued pace. But of course, the key risk for the EU is the "PIIGS", the Swiss National Bank has said it wont take Sovereign debt from Portugal or Ireland as collateral anymore, and well basically none of the problems have gone or even eased yet. So this remains a key risk for 2011. Oh and the ECB meets next week.

5. Monetary Policy Review
In monetary policy, Indonesia and Romania held, Peru raised rate 25bps, Bosnia reduced its RRR, and Chile announced currency intervention moves. But the real interesting development in monetary policy is the commodity story for 2011 - food prices remain high due to supply constraints (as well as some weather impacts), and energy is staging a cyclical rebound, pair that with fast growth in emerging markets and you have a real challenge for monetary policy setters in 2011. So, watch this space!


So we saw some pretty good PMI results in the US for December, which show that there is a bit of momentum in the US economy. The payrolls figure was good but not great; which may well be the theme for 2011. US mutual fund flows data pointed to a possible reversal of dominance from bond to equity funds for 2011. Over in the EU, conditions are on track but subdued, but of course there are still some relatively concerning risks bubbling away there. And on the monetary policy front, commodities and fast growing emerging markets are set to make this an "interesting" year for monetary policy makers.

1. US Institute for Supply Management & Yahoo Finance
2. US Bureau of Labor Statistics
3. US Investment Company Institute
4. Trading Economics

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