Top 5 Economics Graphs of the Week - 28 August 2010

This week we take a look at GDP stats from the robust German economy, and the less than robust US economy. Then we look closer at the US situation; reviewing the existing home sales data, and consumer sentiment data. We then wrap up with a review of the July trade figures from Japan.

1. German GDP
Germany proved itself to be one of the strongest developed economies (and certainly within the EU). Overall the German economy grew 2.2% compared to the previous quarter (the fastest growth rate since East and West Germany reunified). The surge in growth was driven by strong exports, up 8.2% in Q2; boosted by trade with China and the US... which should immediately raise some concerns given the slowing of those two economies. However equipment investment (up 4.4%) also grew relatively strongly; and consumer spending returned to growth (0.6%). So there are growing signs of fundamental strength in the German economy, as well as from the rebound in international trade.


2. US GDP
The US economy showed further signs of descending into the double dip as the second quarter GDP growth rate was downgraded to 1.6% annualised (0.4% q/q) vs initial reading of 2.4% annualised (0.6% q/q). The downgrade was driven by a higher net export deficit and smaller gain in inventories; as well as residential investment and government purchases; these were partially offset by slight upward adjustments to personal consumption and nonresidential fixed investment. From here the vulnerability and weight of risks is almost certainly weighted to the downside, there's a weakening housing market, a still high unemployment rate, a necessary period of deleveraging to go through; so the weight of probabilities is for a dip back into negative growth. The best case scenario would be for stagnant growth (the muddle ages).


3. US Existing Home Sales
US existing home sales confirmed concerns by many that the US housing market is still a major risk area for the US economic recovery. On a seasonally adjusted annualised basis existing home sales dropped to 3.83 million from 5.37 million in June (consensus was for a dip to just 4.65m). Supply at the current sales rate expanded from 8.9 months to 12.5 months - the worst reading in 11 years. For now prices have only dipped slightly, with reluctant sellers not yet giving in, the median price dipped to $182,600 from $183,700 in June. So, as noted above, unless something radical happens, the US housing market remains a critical threat to the US economic recovery.


4. US Consumer Sentiment
On a similar vein, the Reuters/University of Michigan Consumer Sentiment index crept along, rising slightly from the July reading (68.9 vs 67.8). Expectations improved less; 62.9 vs 62.3 and current conditions improved to 78.3 from 76.5. Overall the impact of scarce jobs and stagnating incomes have spurred consumers to hunker down; taking a more defensive outlook with the whole deleveraging and cash reserve building behaviour becoming more and more endemic (and for good reasons). The data lines up with the weak housing data, and slowing trend in the GDP data; unless the manufacturing sector really pulls a rabbit out of the hat; and exports somehow surge, the outlook keeps coming back to the scenario of a double dip.


5. Japan Trade
Japan saw a continuation of the recovery in exports (and imports), but at a slightly slower pace. Looking to the chart its clear the trend is showing a recovery, but still; exports are well below trend, and are still yet to return to levels seen prior to the crash in global trade. Exports climbed 23.5% year on year to 5.983 trillion yen ($71 billion), the year on year growth rate in June was 27.7%. Interestingly the key driver of growth was continued sales of cars and electronic components to emerging economies like China and other Asian countries; which is promising somewhat given their higher potential growth rates. But the Japanese Yen has been appreciating, and this could reduce export competitiveness. So for Japan, trade remains the key to sustaining economic growth, but the downside risks remain.


Summary

So we saw two key developed economies provide updates on their GDP situations. On the one hand there was Germany - albeit caught up still with some of the wider EU risks - which was showing surprising resilience, with strong exports, growth in investment, and even a return of consumer spending. The signs are for continued strength in the German economy.

The US however showed weakness on almost all fronts; and the housing data and consumer sentiment data did nothing to provide comfort. It's becoming increasingly harder to get to any other conclusion than for a double dip. The best case is likely to be a prolonged period of stagnant growth, aka the muddle ages of the recovery.

Over to Japan, the challenges of deflation (which increased to -1.1% in July), high government debt, and low consumer spending; were carried once again by strength in trade. But again, as some of its key trade partners show signs of slowing, and as the Yen appreciates, the outlook is probably also for relatively stagnant growth at best.

Sources
1. OECD Stats stats.oecd.org
2. Bureau of Economic Analysis www.bea.gov
3. Realtor.org www.realtor.org
4. Reuters/Univesity of Michigan customers.reuters.com
5. Japan External Trade Organization www.jetro.go.jp

Article Source: http://www.econgrapher.com/top5graphs28aug.html

Top 5 Economics Graphs of the Week - 24 July 2010

This week we look at UK GDP, Canada monetary policy and inflation, review some of the monetary policy decisions of the week just gone, and then assess some of the housing data on the US real estate market.

1. UK GDP
The UK surprised in the second quarter of 2010, recording growth of 1.1% q/q vs expectations of a 0.6% increase, and accelerating since the previous quarters' much milder growth. However the growth spurt is widely expected to be short lived amid requisite government cuts in public spending. On an annual basis the UK economy grew 1.6%. But as with most advanced economies the bounce-back in late 2009 and early 2010 are likely to taper off into the 2nd half of 2010, potentially realising fears of a double dip recession, or at least proving true predictions of a stop-start, subdued recovery.


2. Canada Inflation and Monetary Policy
Canada (the first G-7 country to raise rates), again hiked its interest rate from 0.50% to 0.75% this week, while at the same time reporting inflation of 1% in June (down from 1.4% in May). The move was widely expected as the Bank of Canada looks to normalise monetary policy as the recovery becomes gradually more entrenched, indeed Canada is one of the luckier developed economies; finding peers in the likes of Australia and New Zealand as countries that are raising rates to ensure the sustainability of their relatively stronger recoveries. But the outlook for the Canadian economy, and the course of its monetary policy will probably depend as much on international events as domestic developments.


3. Monetary Policy Review
Along with the Bank of Canada raising its rate to 0.75% from 0.50%, the South African Reserve Bank left its rate at 6.50%, while Banco Central do Brasil increased its rate to 10.75% from 10.25% - a move that was less expected vs the consensus for a 75bps increase. The decisions show some of the spectrum of activity going on in monetary policy at the moment; there's countries like Brazil; with surging economic growth that are now switching the focus from growth to controlling inflation. While countries like South Africa are still trying to promote economic growth and recovery; yet others like Canada are beginning the process of normalisation. It just goes to show that while during the crisis the policy easing was synchronised, the path to normalisation will be anything but.


4. US Housing Starts
US housing starts in June fell to 0.549m on a seasonally adjusted annual basis, this was down both on May (0.593m) and consensus (0.58m). The lack luster results show that housing is still suffering from poor economic conditions, and a lack of tax credits. And while conditions remain significantly lower than pre-crisis levels, one positive was a slight improvement in permits. But it will take some time for the drop off in inventory building in the housing market to translate through to higher prices - which may be the thing needed to restart activity in this space; don't hold your breath though.


5. US Existing Home Sales
Another key US housing data point out this week was US existing home sales, the data reflected what is obvious - a generally weak housing market. The number of existing homes sold on a seasonally adjusted annualised rate was 5.37m for June, versus May figure of 5.66m, and up slightly versus consensus of 5.26m. The only positive in the report was the short term rise in prices, but this is likely to be largely temporary as the stubbornly high unemployment rate caps any further rises in prices, and housing inventories rise further to about 10 months. So again, surprise, surprise, the US housing market is still not well!


Summary

So we looked at UK GDP and saw that the recovery is chugging along, but that despite the spike up in Q2, it will be a long slow recovery, especially as the UK government looks to get its financial affairs in order.

On the monetary policy front we saw further normalisation from Canada, attempts at stimulating growth by South Africa, and further moves to hold off over-heating in Brazil. The conclusion remains, that while we saw a synchronised loosening of monetary policy during the crisis, the recovery will see a much less synchronised normalisation of monetary policy.

And last but not least, we reviewed some of the data that came out over the week on the US housing market; seeing that housing starts displayed continued weakness, and that existing home sales were still in poor shape. So aside from a likely temporary increase in prices in the existing home sales report, the US housing market is still in poor shape, and is unlikely to really gain wind until the rest of the economy goes through the recovery process.

Sources
1. UK National Statistics www.statistics.gov.uk
2. Bank of Canada www.bankofcanada.ca
3. Banco Central do Brasil www.bcb.gov.br & South African Reserve Bank www.reservebank.co.za & Bank of Canada www.bankofcanada.ca
4. US Census Bureau www.census.gov
5. National Association of Realtors www.realtor.org

Article Source: http://www.econgrapher.com/top5graphs24jul.html

Existing home sales - on the rise?

Existing home sales - on the rise?
July US existing home sales came in at 5.24 million, up 5.0% month on month and up 7.2% year on year, and higher than the 5m forecast (lower 4.8 m, higher 5.25m). So overall a reasonably positive result, and the chart below shows a distinctive upward monthly trend developing. On the price side the July median price was 178.4k, down -15.1% year on year - so on that basis you would expect a little pick up in volume of sales (think back to elementary economics - supply and demand, price goes down demand goes up - sales go up). In terms of the impact on the wider economy it's pretty good news, it's another sign that the US housing market is on the road to recovery (and remember the housing market crash was basically the catalyst that sparked the entire financial and subsequent real economy crisis). The chart below also shows the closing value of the S&P 500 of each month (plus high/low values). You can see a reasonably similar path for the two - so there may just bee some legs to the recent stock market performance...