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Global Economics Daily II 14 July 2010
Edited by: Dean Maki +1 212 526 1731 Nicholas Tenev +1 212 526 5452
We have revised our Q2 US GDP forecast down to 3.0%
Rebound in core US retail sales, but softer Q2
US import prices drop 1.3% in June
The next 24 hours: Today: FOMC minutes; Tomorrow: Empire State mfg, US PPI, US industrial production, Philadelphia Fed mfg, ECB monthly bulletin
Recent data and events We have revised our Q2 US GDP forecast down to 3.0%
Incorporating today’s weaker-than-expected news on business inventories and retail sales, we have cut our Q2 GDP forecast to 3.0%, below our previous tracking estimate of 3.5% and our official 4.5% forecast; the trade report earlier in the week had lowered our tracking estimate to 3.5%. Business inventories rose 0.1% in May, below our (0.3%) and the consensus (0.2%) forecast, and this suggests that inventory accumulation is unlikely to make as big a positive contribution to Q2 GDP as we previously projected. Meanwhile, as discussed below, although core retail sales rose 0.2% in June, downward revisions to April and May point to private consumption growth of about 2.5% in Q2 as a whole, compared to our previous forecast of 3.5%. Finally, May’s trade data suggest the trade deficit widened further in Q2, implying more of a drag on GDP growth than we had previously expected. Elsewhere, we expect government spending and business investment to contribute positively to Q2 GDP growth, with particular strength in equipment and software spending. We have not revised our GDP forecast for future quarters; while recent data have been softer than expected, we do not see this as the beginning of a persistent slowdown in growth. In our view, the underlying trend in business investment and consumer spending remains solid, and we expect this to show through over the next several months.
Dean Maki
Rebound in core US retail sales, but softer Q2
Retail sales declined 0.5% in June, below our and the consensus forecast (both -0.3%). However, this was dragged lower by sharp declines in autos, gasoline and building materials. Core retail sales (which exclude these three components and feed into our GDP tracking estimate) rose 0.2%, above our 0.1% forecast. That said, this upside surprise was tempered by downward revisions to May and April, the former to -0.2% from 0.1% and the latter to -0.4% from -0.2%. This is likely to translate into small downward revisions to personal consumption growth and thus leave Q2 consumption growth tracking close to 2.5%.
Among non-core items in June, gasoline fell 2.0%, autos 2.3% and building materials 1.0%. Within the core, gains in electronics (1.3%), clothing (0.6%) and health care
Core retail sales continue to grow
-15
-10
-5
0
5
10
07 07 08 08 09 09 10
Retail sales
Core retail sales
y/y % chg
Source: Census Bureau, Haver Analytics
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(0.5%) offset declines in furniture (-1.1%) and food (-0.5%). All in all, although retail sales have disappointed in Q2 as a whole, the rebound in core retail sales in June is an encouraging sign for prospects for Q3, during which consumer spending should continue to be supported by solid wage and employment growth.
Peter Newland
US import prices drop 1.3% in June
Import prices fell 1.3% in June after a revised 0.5% decrease in May, a steeper drop than we (-0.2%) or the consensus (-0.4%) had expected. While much of the decline was due to a 4.4% decline in petroleum prices, nonpetroleum import prices declined 0.5%, much softer than the 0.1% increase we had forecast. Import prices declined in all major categories, with foods and beverages dropping 1.7%, capital goods slipping 0.3%, industrial supples ex-petroleum falling 1.3%, autos and parts edging 0.2% lower, and consumer goods import prices decreasing 0.4%.
It is possible that the June drop in nonpetroleum import prices is reflecting the effects of the increase in the value of the dollar over the past few months. While import prices were quite soft in May and June, it is worth noting
that this comes on the heels of several quarters of rapid import price inflation. Today's report brings the y/y headline rate down to 4.5% from 8.7%, and the y/y ex-petroleum rate to 3.1% from 3.7% – both still near the upper end of the range over the past decade.
Nicholas Tenev
The next 24 hours European data/events: Tomorrow: ECB monthly bulletin
The ECB monthly bulletin will be published at 4:00am/08:00 GMT tomorrow.
US data/events: Today: FOMC minutes; Tomorrow: Empire State mfg, PPI, industrial production, Philadelphia Fed mfg
FOMC minutes (2:00pm/18:00 GMT today): We look for the June FOMC minutes to show greater concern about the state of the economic recovery, as reflected in the cautious tone of the statement regarding softness in the housing sector and less supportive financial market conditions. We expect them to reflect the view that inflation will remain subdued for some time due to stable longer-term inflation expectations and substantial resource slack. They may also provide context regarding the degree to which Committee members see declines in energy and commodity prices as pushing trend inflation lower. We expect the minutes to remain largely silent on the early testing of the Term Deposit Facility, as the Fed continues to state that the auctions are a "matter of prudent planning and have no implications for the near-term conduct of monetary policy." We would not be surprised to see some discussion of potential policy alternatives should the economic outlook worsen, though we would view any such discussion as part of normal contingency planning, rather than signaling an expectation that these measures would actually be used. Finally, the minutes should also provide updated FOMC forecasts; we expect the FOMC to modestly lower its growth forecasts for 2010.
Empire State mfg index (8:30am/12:30 GMT tomorrow): We and the consensus expect the Empire State manufacturing index to slip to 18.0 in July from 19.57 in June, consistent with continuing strong growth in the New York-area manufacturing sector. The new orders and delivery time indices, both forward-looking indicators, improved in June.
After a sharp cyclical rebound, import prices are easing
Import prices
-25
-20-15
-10-5
0
510
1520
25
00 02 04 06 08 10
Total
Nonpetroleum
% y/y
Source: BLS, Haver Analytics
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However, national manufacturing growth seems to be moving sideways, so we look for the Empire index to follow suit in July.
PPI (8:30am/12:30 GMT tomorrow): We expect a 0.1% decline in the PPI in June and a 0.1% increase in the core PPI, in line with consensus forecasts. Within non-core components, declines in gasoline will likely push the headline index lower, although a rebound in food prices (following a decline in May) is likely to provide a partial offset. Within the core, there have been fairly broad-based price gains in recent months. We expect this trend to continue in June, although there may be some negative payback in the tobacco component, following a strong gain in May.
Industrial production (9:15am/13:15 GMT tomorrow): We expect a 0.2% decline in industrial production in June (cf. consensus: -0.2%). Recent data suggest that the recovery in the manufacturing sector lost some momentum at the end of Q2. For example, in June, the production component of the ISM fell to 61.4 from 66.6 and manufacturing hours worked declined. As a result, we expect manufacturing output to fall 0.3%. However, this would still be consistent with robust growth in Q2 as a whole. The annual revision to industrial production data, published since the May release, left Q1 growth lower than initially reported but that in Q4 higher, although the broad picture remains the same.
Philadelphia Fed mfg index (10:00am/14:00 GMT tomorrow): After dropping 13.4 points to 8.0 in June, we expect the Philadelphia Fed manufacturing index to increase to 12.0 in July (cf. cosnensus: 10.0). The forward-looking new orders index actually improved in June, signaling a likely acceleration in demand. Furthermore, the June decline in the national ISM index was much milder than that in the Philadelphia index.
Barclays Capital economics teams
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Calendar Wednesday 14 July Period Prev 2 Prev 1 Latest Forecast Consensus
- Thailand: Interest rate announcement, % - 1.25 1.25 1.25 1.50 1.50 A- France: Bank holiday
18:00 US: Minutes of June FOMC meeting released0:00 Singapore: Advance GDP estimate, % y/y Q2 0.9 3.5 13.1 14.5 19.3 A6:00 Finland: HICP, % m/m (y/y) Jun 0.6 (1.5) 0.3 (1.6) -0.2 (1.4) 0.3 (1.3) 0.2 (1.3) A8:00 Austria: HICP, % y/y Jun 1.0 (1.8) 0.2 (1.8) -0.1 (1.7) 0.4 (2.3) 0.0 (1.8) A
8:00 Italy: Final CPI, % m/m (y/y) Jun 0.0 (1.6) 0.0 (1.4) 0.0 (1.3) P 0.0 (1.3) 0.0 (1.3) A8:00 Italy: Final HICP, % m/m (y/y) Jun 0.9 (1.6) 0.1 (1.6) 0.0 (1.4) P 0.0 (1.4) 0.1 (1.5) A
8:30 UK: Claimant count, change k Jun -32.7 32.0 -30.9 -26.0 -20.8 A8:30 UK: ILO unemployment rate, % May 8.0 8.0 7.9 7.8 7.8 A8:30 UK: Average weekly earnings, % 3m y/y May 2.5 4.3 4.1 R 3.1 2.7 A8:30 UK: Core average weekly earnings, % 3m y/y May 1.7 2.0 1.9 1.9 1.8 A9:00 E16: HICP, % m/m (y/y) Jun 0.5 (1.5) 0.1 (1.6) (1.4) "flash" 0.0 (1.4) 0.0 (1.4) A
9:00 E16: HICP ex tobacco, index (2005 = 100) Jun 109.09 109.58 109.71 109.68 R 109.70 A
9:00 E16: 'Eurostat' core (HICP x fd, alc, tob, ene), % m/m (y/y) Jun 0.8 (1.0) 0.3 (0.8) 0.1 (0.8) 0.0 (0.9) 0.0 (0.9) A9:00 E16: 'ECB' core (HICP x unproc.fd, ene), % m/m (y/y) Jun 0.7 (0.9) 0.2 (0.7) 0.1 (0.8) 0.0 (0.8) 0.1 (0.9) A
9:00 E16: Industrial production, % m/m (y/y wda) May 0.8 (4.1) 1.5 (7.8) 0.9 R 1.4 (9.3) 0.9 (9.4) A12:30 US: Retail sales, % m/m Jun 2.1 0.3 R -1.1 R -0.3 -0.5 A
12:30 US: Retail sales ex autos, % m/m Jun 1.2 0.3 R -1.2 R 0.0 -0.1 A
12:30 US: Core retail sales, % m/m Jun 0.6 -0.4 R -0.2 R 0.1 0.2 A12:30 US: Import prices, % m/m (y/y) Jun 0.4 (11.2) 1.1 (11.2) -0.5 (8.7) R -0.2 (5.5) -1.3 (4.5) A
12:30 US: Nonpetroleum import prices, % m/m (y/y) Jun -0.1 (2.8) 0.5 (3.5) 0.5 (3.7) -0.1 (3.1) -0.5 (3.1) A
14:00 US: Business inventories, % m/m May 0.6 0.7 0.4 0.3 0.1 A19:00 Argentina: CPI, % m/m Jun 1.1 0.8 0.7 -0.2 0.709:00 Germany: 5y OBL Auction 74.0 €5bn
09:00 Italy: 5y, 13y and 30y BTP Auctions €7bn
09:30 Portugal: 2y & 9y PGB taps €1bn09:30 UK: 2046 Gilt Auction £2.25bn17:00 US: 30y Note Auction $13bn
Thursday 15 July Period Prev 2 Prev 1 Latest Forecast Consensus
8:00 E16: ECB monthly bulletin published Jul12:30 US: Fed Governor Duke (FOMC voter) gives opening remarks at an Atlanta Fed hearing on the Home Mortgage Disclosure Act14:00 US: Senate Banking Committee holds confirmation hearing for nominations of Yellen, Raskin, and Diamond to the Fed Board of Governors16:00 Turkey: Interest rate announcement, % Jul 7.0 7.0 7.0 7.0 -
22:00 Chile: Interest rate announcement, % Jul 0.5 0.5 1.0 1.5 1.5
23:15 US: Richmond Fed President Lacker (FOMC non-voter) speaks on the economic outlook to business leaders- Peru: GDP, % y/y May 5.9 8.8 9.3 8.8 9.4- Greece: Unemployment rate, % Apr 11.3 12.1 11.6 - 11.9
1:00 Australia: Inflation expectations, % y/y Jul 4.1 3.6 3.4 - -2:00 China: Real GDP, % y/y Q2 9.1 10.7 11.9 10.4 10.42:00 China: CPI, % y/y Jun 2.4 2.8 3.1 3.4 3.32:00 China: PPI, % y/y Jun 5.9 6.8 7.1 6.8 6.82:00 China: Industrial production, % y/y Jun 18.1 17.8 16.5 14.5 15.52:00 China: YTD, FAI, % y/y Jun 26.4 26.1 25.9 25.1 25.32:00 China: Retail sales, % y/y Jun 18 18.5 18.7 18.9 18.8
6:00 E16: New car registrations, % y/y (nsa) Jun 10.8 -7.4 -9.3 - -
8:30 UK: BoE housing equity withdrawal, £ bn Q1 -6.1 -5.1 -4.0 - -
12:30 US: Initial jobless claims, thous (4wma) 10-Jul 459 (463) 475 (467) 454 (466) 435 (456) 445 (458)
12:30 US: Empire State manufacturing index Jul 31.86 19.11 19.57 18.0 18.00
12:30 US: Producer price index, % m/m (y/y) Jun 0.7 (6.0) -0.1 (5.5) -0.3 (5.3) -0.1 (3.1) -0.1 (3.1)12:30 US: Core producer price index, % m/m (y/y) Jun 0.1 (0.9) 0.2 (1.0) 0.2 (1.3) 0.1 (1.1) 0.1 (1.1)
13:15 US: Industrial production, % m/m Jun 0.3 0.6 1.3 -0.2 -0.113:15 US: Capacity utilization, % Jun 72.7 73.1 74.1 74.0 74.1
14:00 US: Philadelphia Fed manufacturing index Jul 20.2 21.4 8.0 12.0 10.015:30 Israel: CPI, % y/y Jun 3.2 3.0 3.0 2.6 2.4
08:30 Spain: 15y SPGB tap €2.5bn
09:00 France: BTAN taps €8.5bn09:30 UK: 2022 UK Linker Auction £1.1bn
10:00 France: Linker taps €1.5bn
Sources: Reuters, Market News, Bloomberg, Barclays Capital
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