Top 5 Economics Graphs of the Week - 20 August 2010

This week we look at the Q2 GDP results for Japan and Taiwan; getting a gauge on how these two key Asian economies are tracking in their recoveries. Then onto the US where we look first at the industrial production results, which are a tad paradoxical, and then at the PPI stats which may be pointing to margin compression. Then we wrap-up with a view on Euro zone inflation.

1. Japan GDP
Japan's economy grew at an annualized rate of 0.4% (basically flat), well below median forecasts for about 2.3%, and Q1 revised rate of 4.4%. The Japanese economy was also reported as dropping behind China to the world's 3rd largest economy (which is pretty much just a technicality in confirming a foregone conclusion). The Japanese economy was held back by slowing export growth and subdued consumption, as phase 2 of the recovery sets in (i.e. the muddle ages). So Japan will keep muddling on, the key sensitivities for Japan continue to be international trade (and therefore the currency), and on a related note; the resilience of the Chinese economy.


2. Taiwan GDP
Taiwan's economy grew 12.53% year on year in the June quarter, slower than 13.71% in Q1 but higher than consensus estimates for 10.5%. The great rebound is just about run its course in Taiwan. The Taiwanese economy which is also closely linked to the fortunes of global trade, and its neighbor to the north (Zhong Guo); which is currently undergoing a managed slowdown. The policy factors are also playing into the picture as the central bank in Taiwan normalises monetary policy (with a few small hikes expected into the second half of 2010), as well as fiscal policy normalisation, with the authorities keen to keep government debt below the 40% debt to GNP ceiling.

3. Industrial Production
The US released its industrial production figures for July this week, with production rising 1.0% month on month; ahead of consensus 0.6%, and previous 0.1%. On an annual basis industrial production rose 7.7% off of the lows of the earlier stages of the recession, decelerating slightly off 8.2% in June. Capacity utilisation also climbed to 74.8% from 74.1% in June. Looking at the chart below you can see the path of some of the other major economies; China's trucking along, Japan's super-volatile, and the EU/US are playing catch-up since the depths of the recession. The trend marks a dissonance in the US economic scene, as business investment and manufacturing is a bright spot, whereas the consumer is a dark spot; if the US can build up exports it may lead to a happier ending...

4. US PPI
US Headline PPI rose 4.1% year on year, and core (taking off the more volatile food & energy components) rose 1.5%. The movements in prices here reflect some of the signals from the PMI prices sub-index which has been riding relatively high for a few months; however as is notable from the relatively more static and subdued CPI inflation metrics, the price increases aren't getting passed through to the consumer (which makes sense given the competitive environment, and economic environment), so this may mean a bit of margin compression... especially as capacity utilization (normalization) results in eventual reversals of the purge of labor costs during the recession. So this recent positive bout of corporate earnings could be somewhat short-lived as demand is relatively lackluster and potential pressure on the cost side also puts a double hit on margins.

5. EU CPI
Euro zone inflation increased in July to 1.7% from 1.4% in June on an annual basis for the Euro area, and 2.1% from 1.9% for the EU. However in the month of July inflation was actually negative compared to the previous month. The results tentatively point to a stabilisation or even turning of inflation, but as the ECB noted in its recent statement, "inflation rates should remain moderate overall, benefiting from low domestic price pressures". And so, the EU will likely also just keep muddling along, with no significant price inflation; but... remember the EU is actually a collection of economies, which will all be tracking along at their own unique pace e.g. the powerhouse Germany vs the others like Greece.

Summary

So we saw a tapering off of growth in both Japan and Taiwan, two key Asian economies that saw a strong bounce back in GDP following their emergence from the depths of the crisis. And looking forward, the risks are similar for them both; they are both very sensitive to the course of the global economy due to their dependence on international trade, but of the two, Taiwan has less problems and seemingly a better policy position.

Then onto the US we saw industrial production tracking along well; providing some positive (albeit dichotomous) signs as the consumption paradox unwinds. There was also the potential early warning in PPI that margin pressure may increase for US corporates in the medium term. Keeping with large developed economies and inflation; the EU inflation picture is unfolding much as the growth picture is; just muddling along.

Sources
1. OECD Statistics Database stats.oecd.org
2. Taiwan Statistics eng.stat.gov.tw
3. Trading Economics www.tradingeconomics.com
4. US Bureau of Labor Statistics www.bls.gov
5. Eurostat epp.eurostat.ec.europa.eu

Article Source: http://www.econgrapher.com/top5graphs20aug.html

Economic Calendar - 16 August 2010

Here's the Economic Calendar for the week commencing the 16th of August 2010. This week the key economic events start with Japan on Monday releasing its Q2 GDP stats, also on Monday is China with its foreign direct investment figures, and the CB leading index. Throughout the week there will be a few inflation metrics out; EU CPI, UK CPI, US PPI and capacity utilisation, NZ PPI, and Canada CPI. There's also monetary policy meeting minutes due from the Bank of England, and the Reserve Bank of Australia; speaking of which, there's also the Australian elections at the end of the week.

(More commentary follows the table)

Day	Time (GMT)	Code	Event/Release	Forecast	Previous
		CNY	Foreign Direct Investment ytd/y		19.6%
MON	00:00	CNY	CB Leading Index m/m		0.8%
MON	00:00	JPY	Gross Domestic Product Annualized (2Q)	2.3%	5.0%
MON	00:00	JPY	Nominal Gross Domestic Product (QoQ)	-0.3%	1.3%
MON	00:00	JPY	Gross Domestic Product (QoQ) (2Q P)	0.6%	1.2%
MON	00:00	JPY	Gross Domestic Product Deflator (YoY)	-1.8%	-2.8%
MON	09:00	EUR	Euro-Zone CPI - Core (YoY) (JUL)	1.0%	0.9%
MON	09:00	EUR	Euro-Zone Consumer Price Index (YoY)	1.7%
MON	12:30	USD	Empire Manufacturing (AUG)	8.25	5.08
MON	01:30	AUD	Reserve Bank's Board August Minutes
TUE	08:00	EUR	Euro-Zone Current Account s.a. (euros)		-5.8B
TUE	08:00	EUR	Euro-Zone Current Account n.s.a. (JUN)		-16.7B
TUE	08:30	GBP	Core Consumer Price Index (YoY) (JUL)		3.1%
TUE	08:30	GBP	Consumer Price Index (YoY) (JUL)	3.1%	3.2%
TUE	12:30	USD	Housing Starts (JUL)		549K
TUE	12:30	USD	Building Permits (MoM) (JUL)		2.1%
TUE	12:30	USD	Producer Price Index (YoY) (JUL)	4.2%	2.8%
TUE	12:30	USD	PPI Excluding Food & Energy (YoY) (JUL)	0.2%	1.1%
TUE	13:15	USD	Industrial Production (JUL)	0.5%	0.1%
TUE	13:15	USD	Capacity Utilization (JUL)	74.5%	74.1%
TUE	21:00	USD	ABC Consumer Confidence (AUG 15)
TUE	00:30	AUD	Westpac Leading Index (MoM) (JUN)		0.2%
WED	05:00	JPY	Coincident Index (JUN F) (JUN F)
WED	05:00	JPY	Leading Index (JUN F) (JUN F)
WED	08:30	GBP	Bank of England Minutes (AUG 18)
WED	22:45	NZD	Producer Prices- Outputs (QoQ) (2Q)		1.8%
WED	22:45	NZD	Producer Prices- Inputs (QoQ) (2Q)		1.3%
WED	03:00	NZD	ANZ Consumer Confidence Index (AUG)		115.6
THU	06:15	CHF	Trade Balance (Swiss franc) (JUL)		1.77B
THU	08:30	GBP	Retail Sales With Auto Fuel (YoY) (JUL)	1.1%	1.3%
THU	08:30	GBP	Retail Sales (YoY) (JUL)		3.1%
THU	12:30	CAD	Leading Indicators (MoM) (JUL)		1.0%
THU	12:30	CAD	Wholesale Sales (MoM) (JUN)		-0.1%
THU	12:30	USD	Initial Jobless Claims (AUG 14)	480K	484K
THU	14:00	USD	Leading Indicators (JUL)	0.1%	-0.2%
THU	14:00	USD	Philadelphia Fed. (AUG)	7.5	5.1
THU	22:45	NZD	New Zealand Net Migration s.a. (JUL)		70
FRI	11:00	CAD	Consumer Price Index (YoY) (JUL)		1.0%
FRI	11:00	CAD	Bank Canada CPI Core (YoY) (JUL)		1.7%
FRI		AUD	Australian Elections

For what is a relatively quiet week, the main event will be on Monday with Japan releasing its second quarter GDP numbers. The Japanese economy is projected to have grown 2.3% on an annualised basis in Q2, or 0.6% on a quarter over quarter basis... and about -0.3% quarter on quarter on a nominal basis (hmm I guess that's where having deflation is a good thing?). Japan also has a few other minor indicators out during the week e.g. the coincident and leading indexes. Anyway, the Japanese economic recovery is relatively entrenched thanks to the normalization of global trade volumes, but of course it still faces the demographic challenge, the fiscal challenge, and of course the deflation challenge.

As noted, much of the data releases this week will inform the view on the inflation situation. The first up will be the EU with July year on year inflation projected to increase slightly, then there's the UK with it's own RPI and CPI - expected to remain static around 3%. Then the US releases PPI on Tuesday, which is expected to spike up on the back of food and energy prices; there is also an expectation that capacity utilisation will also edge up slightly. New Zealand also releases its PPI stats on Wednesday, followed by Canada with its CPI or Consumer Price Index data on Friday.

There is a scattering of other interesting data points out during the week, including China's foreign direct investment numbers and its leading index; which will add to the picture seen last week when the major data release was made. Other releases of note are EU current account for June, US industrial production (which is expected to increase slightly), US ABC Consumer Confidence index, NZ ANZ consumer confidence index, UK retail sales, and NZ net migration.

While there's no major monetary policy moves on the calendar there is the meeting minutes due from the Reserve Bank of Australia, which will likely be pretty straightforward; in line with the messaging that was in the recent monetary policy announcement where they left rates unchanged at 4.5%. The Bank of England is also set to release its minutes on Wednesday; this one will be more interesting because the Bank of England doesn't really say much when it announces its decisions (which were recently to hold the rate at 0.50% and the APP at GBP 200 billion). On the policy front, its worth noting that Australia has its elections on Friday/Saturday.

So as always, have a great week, watch out for surprises, and stay tuned for updates...

Sources
DailyFX www.dailyfx.com/calendar
Forex Pros www.forexpros.com/economic-calendar/
Forex Factory www.forexfactory.com/calendar.php
Bloomberg www.bloomberg.com
+various statistics websites and central bank websites for verification

Article Source: http://www.econgrapher.com/16aug-calendar.html

Top 5 Graphs of the week: inflation risks rising

Are upside inflation risks rising in developed economies? That's one question we look at in this week's edition. First up is a synopsis of the UK GDP figures, then a look at rising British inflation, the Bank of Canada decision and inflation rate, the surge in US producer prices, and a look at New Zealand inflation. Overall the theme is that there are indeed signs of increasing inflation risks for these developed economies, and even though some of the short term drivers may be temporary there is the risk that they have a lasting impact.

1. UK economy muddles along...
The first G7 economy to report growth, the UK saw its economy growing at 0.2% q/q in Q1 2010, against expectations for a repeat of Q4 2009 of 0.4%. On a year over year basis it is still just in negative territory. The recent two quarters provide tentative evidence that the deepest recession on record for the UK could be coming to an end. But the usual line for economic commentary these days is that significant risks remain. The UK is currently faced with an official unemployment rate of 8%, and its once burgeoning financial sector will take some time to recover from the GFC, and significant risks remain around government finances and inflation.

2. While UK inflation picks up
The UK saw its inflation rate pick up again to 3.4% on an annual basis from 3% in February, and is currently sitting well above the official 2% target. Granted, much of the increase is related to the reversal of the drop in the value added (sales) tax which was dropped as the financial crisis set in to help stimulate the economy. The commodity price rebound has also assisted the resurgence of inflation. But even though these are temporary or artificial drivers of inflation, there is the risk that inflation expectations could be impacted and that wage and price negotiations factor in a higher rate, which will require the Bank of England to move on its record monetary policy stimulus measures.

3. Canada holds rates again, inflation remains stable
The bank of Canada held off again on increasing interest rates from the record low 0.25%. Meanwhile inflation came in at 1.4% year on year for March, down on Feb; core inflation grew 1.7% in March, against expectations for a 1.9% rise. The Bank of Canada also noted its conditional commitment to hold rate low at least until Q2 2010 had expired, and that "the need for such extraordinary policy is now passing", and thus will likely start paring back its policy stimulus as conditions dictate in keeping with the 2% inflation target. The Bank of Canada also lifted its growth projections for the Canadian economy to 3.7% in 2010 slowing to 3.1% in 2011 and 1.9% in 2012.

4. US producer prices continue to increase
US PPI jumped unexpectedly in March, rising 0.7% against forecast 0.4% and February's -0.6%. On an annual basis it rose 6% in March. Meanwhile core PPI rose 0.1% month on month and 0.8% year on year. Thus much of the increase in prices is related to food prices and energy prices i.e. the great commodity price rebound. But as noted in the UK situation, there is a real risk that this temporary inflationary surge translates into a more generalized pick up in inflation and inflation expectations. This could have the impact of rising wage and salary costs even as unemployment remains extremely high (and as noted by the IMF, could be higher than indicated). Thus the risks for US inflation remain to the upside.

5. New Zealand inflation moves sideways for now
New Zealand inflation moved sideways in the March quarter (as noted in my previous article), but looming factors will make this a temporary situation. The headline inflation figure was 2% y/y, on a quarterly basis it was up 0.4% since December 2009, below consensus estimates for a 0.6% increase. As noted factors like the emissions trading scheme, and increases in ACC insurance premiums, and possibly an increase in the GST (sales tax) rate, will have an artificial but significant impact on price levels in New Zealand. While the RBNZ wont be panicing about this, it may start to raise rates back to neutral as the risk of more generalized inflation picks up as the New Zealand economy continues to recover.

Summary

So we looked the UK economy, and saw significant risks to the recovery as the UK emerges from one of its deepest ever recessions. At the same time we saw inflation picking up in the UK, even though the short term drivers may be temporary. Looking at Canada, we saw the Bank of Canada moving ever closer to an increase in interest rates as inflation moved sideways, but the Bank of Canada lifted its outlook for the Canadian economy, and noted the cessation of its low interest rate commitment.

On to the US, we saw producer prices showing a marked rise, and even though much of the drivers were temporary e.g. commodity price rebound, price normalisation etc. There remains the risk that it gets passed through and factored into inflation expectations. Likewise in New Zealand the outlook for inflation is definitely upwards based on artificial and temporary factors, but the risk is there that these factors pass through into higher real inflation.

Thus the evidence is broadly showing that inflation is currently trending either sideways or upwards in these developed economies, certainly the short term risks remain to the upside as temporary and artificial factors play through. But there is a real risk that these short term factors have a lasting impact. So who will be first to raise interest rates?

Sources
1. UK National Statistics Office www.statistics.gov.uk
2. UK National Statistics Office www.statistics.gov.uk
3. Bank of Canada www.bankofcanada.ca & Trading Economics www.tradingeconomics.com
4. US Bureau of Labor Statistics www.bls.gov
5. Statistics New Zealand www.stats.govt.nz

Article Source: http://www.econgrapher.com/top5graphs24apr.html

Top 5 Graphs of the Week - 23 January 2010

The past week was reasonably quiet on the economic data front outside of China's big statistics release. As such this week's issue is less power packed than usual, but still contains a few gems. First up we look at how US PPI figures point to inflation, UK consumer spending's gradual recovery, UK inflation risks, New Zealand consumer spending trends, and the inflation outlook for New Zealand. If there were two main themes it would be that inflation is ticking along but not yet significantly, and that consumer spending is slowly recovering but well below trend.

1. US Inflation - Producer Price Index
US headline PPI came in at 4.7% year on year (2.7% in November), Core was also up but less so at a 0.9% annual increase. On a monthly basis it was slightly above consensus at 0.2%, and core was unchanged. Much of the increase was driven by food prices, and of course the high year on year % change being boosted by a lower comparison figure. All up the message is that prices have been tracking up, and it's unsurprising to see producer prices rise in the context of the level that the prices index of the ISM PMI has been at. This adds to the overall inflation picture for the US that says inflationary pressures are slowly simmering under the surface, but have yet to truly boil over...



2. UK Consumer Spending
The UK saw a monthly increase in retail sales for December of 0.3%, below an expected 1.1%. On an annual basis for December retail sales were up 2.1%. The biggest contributor to the gains were sales in "predominantly food" stores. The UK will be the first G7 country to announce its Q4 GDP result on the 26th of January. With retail sales figures for the December quarter up vs the September quarter consumer spending is likely to contribute. Consensus is for about 0.4% quarter on quarter growth.



3. UK Inflation
Keeping with the UK, the inflation story unfolding there had a some easily misleading additions in December. The annual rate of inflation measure by CPI was 2.9% (vs 1.9% in November). The biggest driver of this was the reduction of the VAT tax in 2008 to 15% from 17.5%. It was also boosted by a sharp fall in oil prices around December 2008, and Christmas sales pushing down prices. Overall the situation is inflationary in the UK, there are elements in the system like quantitative easing, that bar a severe downturn, will likely trickle through into higher real inflation. This will particularly be the case should activity in the UK begin to pick up further, as the recovery unfolds in the UK, the Bank of England will indeed face a dilemma and a challenge.



4. New Zealand Consumer Spending
New Zealand recorded a 4th month of monthly growth in retail sales in November with 0.8%, and 0.8% for core (less autos). On an annual basis headline was up 1.7%, and core was up 3.6%. As can be seen in the chart below core retail sales have been tracking up and have not been too significantly impacted by the recession, however headline retail sales are clearly growing below trend. Overall it is a positive figure and suggests the positive (albeit small) GDP growth figures recorded in Q2 and Q3 may be developing momentum. December quarter retail sales are due out next week and will give a fuller picture as to how the consumption component of GDP is tracking, likewise international trade figures are also due for December next week.



5. New Zealand Inflation
New Zealand also released its inflation figures last week, revealing reasonably subdued inflation. The figure came in at 2% year on year (-0.2% on a quarterly basis) for Q4 (vs 1.7% in Q3); in the middle of the 1-3% inflation target band of the RBNZ (New Zealand's central bank). On components, transport prices were a contributor, while food prices (esp. vegetables) fell the most. Non-tradeables (core) continued to decelerate with 2.3% vs 3% in Q3. The outlook is for reasonably stable inflation over the medium term, but with potential to pick up as house prices recover and the economy picks up pace. The RBNZ is likely to hike rates from 2.5% (having lowered from 8.5%) sometime around the middle of this year.



Summary
The main takeaways from this article are that inflation is present in the US, but it is still largely bubbling away below the surface - so the growth-inflation trade off is set to become increasingly important in the US. On the UK, inflation seems to be a bigger risk than in the US, particularly given that consumer spending; while not growing rapidly by any means, is beginning a slow recovery - against the backdrop of quantitative easing and broadly loose fiscal and monetary policy conditions. While in New Zealand consumer spending is tracking upwards, yet below trend, and tentatively indicating a pick up in momentum of the recovery there. At the same time New Zealand isn't facing any significant inflationary pressure just yet, and while Australia has started tightening monetary policy; New Zealand probably wont until at least the middle of this year.

Sources:
1. US Bureau of Labour and Statistics http://www.bls.gov
2. UK Office for National Statistics http://www.statistics.gov.uk
3. UK Office for National Statistics http://www.statistics.gov.uk
4. Statistics New Zealand http://stats.govt.nz
5. Statistics New Zealand http://stats.govt.nz

Article Source: http://econgrapher.site1.net.nz/top5graphs23jan.html