Top 5 Graphs of the week - 26 June 2010

This week we look at the progress of the economic recovery in New Zealand, examine the latest US consumer sentiment statistics, then review CPI data from Canada and Japan, and finish up with a review of the trade data from Japan this week. The word gradual pops up several times, and is consistent with the theme of a broadly gradual global economic recovery.

1. New Zealand GDP
New Zealand recorded its 4th quarter of positive GDP growth with 0.6% q/q for the March quarter of 2010. This matched consensus estimates, but was down slightly from the 0.9% recorded in the December quarter of last year; reflecting the somewhat subdued economic recovery, following one of the worst recessions in decades. The growth mostly came from the primary sector and manufacturing sector. New Zealand also reported its current account numbers, showing a current account deficit to GDP ratio of -2.4%, the lowest in more than a decade. Overall the NZ economy is in recovery mode, with the central bank already lifting interest rates, but as I mentioned previously, it's onwards, but only slightly upwards.


2. US Consumer Sentiment
The US consumer sentiment report for June showed a level of 76.0 for the final reading, up from the May reading of 73.6, with an improvement in the current conditions component to 85.6 from 81 in May; the highest in about 2 years. The future expectations component only rose slightly to 69.8 from 68.8 in May. The index is starting to see gains as employment conditions have seen improvements due to some one-offs such as the census, but also genuine jobs normalization (not growth, but normalization - i.e. corrections to overreactions during recession). The results are consistent with a seemingly sustained, yet gradual in the US.


3. Canada Inflation
Canada reported an annual inflation rate of 1.4% in May, following a rise of 1.8% in April. The slightly slower rate reflected a moderation in gasoline costs, and lower prices for clothing. On a core basis, the consumer price index rose 1.8% vs 1.9% in April. The Bank of Canada expects that inflation will be "slightly higher" than its 2% target over the next year, indeed the Bank of Canada has already begun its tightening or monetary policy normalization; increasing the key lending rate to 0.50% from 0.25% in its June meeting. As noted previously, Canada is in a relatively enviable position compared to most over developed economies.


4. Japan Deflation
Japan's annual rate of deflation slowed slightly in May to -1.2%, vs a fall in the consumer price index of -1.5% in April. The consensus was for a -1.3% drop in the CPI. The result is unlikely to dampen the Japanese Government's demands for the Bank of Japan to step up measures to combat deflation. Indeed, the Bank of Japan recently announced a 3 trillion-yen program to encourage lending to companies. The deflation trap can be an insidious one, causing economic growth to slow as companies and households hold off spending; waiting for lower prices - it also encourages over-investment into financial assets vs real assets. The Bank of Japan is not seen raising interest rates until at least 2012, as the fight against deflation continues.


5. Japan Trade
Staying with Japan, the monthly trade figures were out this week, showing continued strong year on year growth, but reasonably lackluster monthly growth. Exports totalled 5.3 trillion yen, and imports 4.9 trillion yen, leaving the trade surplus down at 324 billion yen. Strong demand from China saw exports to China grow 25.3% year on year; with the increased flexibility of the Yuan, the Yen may strengthen against the Yuan, as the imbalances with the USD are unwound. The Yuan USD rate was about 6.796 at the time of writing. Japan has yet to see a return to pre-crisis levels of trade, in contrast to China which has practically fully rebounded. Yet the gains are positive, and also a confirmation of a gradual but seemingly sustained global economic recovery.


Summary
So we have the New Zealand economy showing signs that the recovery is becoming increasingly entrenched, but at the same time; tracking at a relatively subdued pace as the economy recovers in the true sense of the word from one of the worst recessions on record. Meanwhile in the US, the consumer sentiment data lines up with other data points showing a gradual improvement and normalization in activity levels; as the US continues its fragile economic recovery.

On the inflation front, Canada is showing reasonably subdued levels of inflation for now, but as noted by the Bank of Canada, inflationary pressures are likely to grow over the coming year as the economic recovery continues. On the other hand, Japan continues its struggle with deflation, causing the government to put increasing pressure on the Bank of Japan to do more to stimulate the economy and beat the deflation.

But things aren't all bad for Japan, with its international trade figures showing a gradual recovery, which confirms a gradual improvement in demand around the world (as Japan is still a key source of consumer electronics to the world). We also saw the passing of the first week since China announced plans to improve flexibility of the Renminbi; since then the moves haven't been spectacular, but it has managed to gain 0.03 against the USD, which leaves us with the key word of this article and of the global economy: gradual.

Sources
1. Statistics New Zealand www.stats.govt.nz
2. Reuters/Univesity of Michigan customers.reuters.com
3. Bank of Canada www.bankofcanada.ca
4. Trading Economics www.tradingeconomics.com
5. Japan External Trade Organization www.jetro.go.jp

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