Top 5 Economics Graphs of the Week - 4 Sep 2010

This week we look at some particularly strong second quarter GDP numbers out from emerging markets Brazil and India, as well as one lucky developed market, Australia. Then we review the PMI results from the two biggest economies; China and the US.

1. Brazil GDP
The Brazilian economy saw further signs of strength in Q2, reporting 8.8% growth year on year, compared to estimates of 7.9% and a similarly strong 9% in Q1. But with unemployment at record lows, there have been increasing concerns about overheating; especially going into next year. The Banco Central do Brasil has already increased the selic rate a few times this year to 10.75% as well as raising the required reserve ratios. The government expects the economy to grow at least 7% this year. Asset bubbles and overheating aside; it's clear where the growth is coming from in the recovery from the post GFC recession.


2. India GDP
Another one of the BRIC economies to report on Q2 GDP this week was India, who also reported 8.8% growth year on year; compared to 8.6% in Q1. In spite of concerns about data integrity around a revision of the demand component to 10% from 3.7% (with no change in the headline 8.8% figure). The strong points were manufacturing (up 12.4%), services (up 9.7%) and construction (up 8.9%). In terms of the outlook, the monsoon season has been relatively normal so far (a key determinant of output from the agricultural sector - and of course food prices), there may also be potential benefits from helping Pakistan rebuild after the floods. But as with Brazil, with great growth comes the potential for great inflation; and the RBI has already lifted rates and reserve ratios this year.


3. Australia GDP
Australia saw further strength in its economy in Q2 this year, with the economy growing 1.2% q/q vs consensus 0.9% and 3.3% y/y vs consensus estimates for 2.8% growth. The pick up in growth was driven by a 5.6% rise in export volumes, largely due to mining exports. The consensus view on the outlook for the Australian economy is increasingly for an investment boom, with the RBA being the most aggressive of the G20 nations in raising interest rates (which now sit at 4.50%). But of course the outlook for interest rates and the Australian economy will be very much dependent on the global economy; particularly the EU and US, where concerns peaked around the Greek debt situation and potential for a US economic double-dip.


4. China PMI
China reported improvement in the manufacturing sector during August, with the official CFLP PMI rising to 51.7 from 51.2 (consensus 51.5), and the HSBC/Markit PMI rising to 51.9 from 49.4. The data point to the possibility that the recent slowdown is only a temporary one, and with the government having recently tightening lending conditions, there is plenty of room to maneuver if additional stimulus is required. Also out this week was the HSBC/Markit services sector PMI, which rose to 57.6 from 56.3 (the services sector accounted for 43.4% of China's output last year). So for now it seems the outlook is relatively positive; confirming the growing economic clout of the so-called BRIC economies. But as with the results we saw earlier (Brazil, and India) the threat of a resurgence in inflation is still a credible threat in spite of policy tightening.


5. US PMI
The PMI results for the US were also out this week and also showed an upwards blip; rising to 56.3 from 55.5, against consensus 53. However much of the lift in the main index was due to more lagging indicators such as production and employment; new orders dropped slightly, and prices rose, with exports falling and imports rising. The non-manufacturing index was also out, which fell to 51.5 from 54.3 in July, below consensus 53. The new orders index fell 4.3 points, as did export orders, production, and employment. So not such a great outcome. Also out this week was the payrolls data, showing an expansion in private payrolls, but a contraction in overall nonfarm payrolls, wages rose slightly. The strength in private payrolls is promising, but the numbers are still not great, so again, for the US it's the muddle ages.



Summary

We saw a continuation of the strengthening rebound of the Brazilian and Indian economies, confirming views on the global economy being driven by strength in emerging markets. We also saw continued strength in the Australian economy, which is set to continue its mining boom driven surge; but as with the strong emerging markets, inflation is a growing threat. The results are largely consistent with the idea of a 3-tiered economic recovery.

In China we saw improvement in both of the manufacturing PMI data, with some strength in new orders, and strength also showing through in the non-manufacturing sector. The data point to the possibility of the recent slowdown being temporary, and lines up with the results from the other big emerging markets, with the theme being strong growth - but potential for overheating.

Finally we saw some positives, but nothing particularly great in the US data this week. Aside from the promise of further stimulus measures coming next week, the scenario seems to be the muddle ages of the recovery. But one question on the US economic outlook front will be to what extent it may eventually gain from the growing strength in the large emerging market economies like India, China, and Brazil?

Sources
1. Trading Economics www.tradingeconomics.com
2. Trading Economics www.tradingeconomics.com
3. Australian Bureau of Statistics www.abs.gov.au
4. Yahoo Finance finance.yahoo.com & CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com
5. Yahoo Finance finance.yahoo.com & Institute for Supply Management www.ism.ws

Article Source: http://www.econgrapher.com/top5graphs4sep.html

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

Welcome to the Muddle Ages of the Recovery

Before diving into the analysis, a theme occurred to me the other day; more and more the economic data from the US is looking confused. There are some parts of the economy that are showing some relatively promising signs e.g. manufacturing, but then there are other parts (e.g. consumers, housing, etc) which say - "you know, this recovery... it's not that great, things are still hard!" And thus we are at the muddle ages of the post-great-recession recovery. And so, I was just looking at the US total bank assets statistics, and there were a few noteworthy standouts in the data:


The first chart is in someways an acknowledgment that there are a few bright patches in the US economy at present. Commercial and Industrial lending is one of the most cyclically sensitive sectors of lending, if you track it over a longer time period on a year on year percentage basis it shows a fairly persistent cyclical ebb and flow. Not to be calling the all clear, but the turning of the (still negative) year on year % change, and pick up in new lending in C&I loans is certainly an interesting data point in the context of my previous comments.


And that's the good part over, you can stop reading now if you're a blind optimist. The above chart is monthly consumer lending, with monthly percent change vs year on year percent change. It's tempting to call a turn on this one by looking at the course of the year on year percent change. But if you look beyond the data and think about what's going on, it's hard to make a case for any credible short term strength in this lending category.


In what is in some ways the antithesis of consumer lending, the US personal savings rate has reversed its decades long downward trend, which for the long term is a good thing. It is things like this that will help bring the coming of the economic renaissance (eventually)... if it can be sustained. But of course a sustained higher personal savings rate will also mean more consolidation of consumer lending, and lackluster short-term consumer spending (and then there's the government sector side of the savings coin...).


Oh and before we finish, real estate lending has continued its downward spiral and with the US housing market going no where fast, personal savings rates on the rise, unemployment still at highs, and consumer confidence still in the doldrums... it's like; "hmm, where to next on the real estate lending front?" It's hard to see any strong near-term drivers of a reversal in this sector; this is where the consolidation really needs to take place, not that there's really a choice. So, once again; welcome to the muddle ages.

Sources
Econ Grapher www.econgrapher.com
US Federal Reserve www.federalreserve.gov

Article source: http://www.econgrapher.com/18aug-muddleages.html