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Growth in Q2/12: less disappointing than expected
Is unemployment expanding?
Construction activity – down, demand - up?
A monthly review - produced by the experienced I-Biz team of economists - surveying the latest economic data and trends in Israel, and key global
developments impacting the Israel economy.
August 2012
The Israel Economy:Current Highlights
The Israel Economy:Current Highlights
Growth in Q2/12: less disappointing than
expected
August 2012
Main developments: August 2012• Both GDP and business sector product growth accelerated somewhat in Q2/12 but still
remains fairly limited compared to 2010.
• Growth in Q2/12 continues to rank quite high in the growth ranking of the developed
economies.
• Exports of goods and services grew faster in Q2/12 but growth of fixed asset investment
was negative.
• Growth of private consumption – of both durables and particularly of non-durables –
continued to be quite significant in Q2/12.
Growth in Q2/12: less disappointing than expected
August 2012
GDP and business sector product(quarterly seasonally adjusted annualized % changes, constant prices)
• GDP growth accelerated somewhat to an annualized 3.2% in Q2/12 compared to 2.8% in the previous quarter and business sector product growth – to 3.7% compared to 2.2%. From one point of view, this looks like a less disappointing result than an expected continuation of the growth slowdown that began from mid-2011.
• However, the growth rates of the past 4 quarters, including Q2/12, make up a period of slower average growth (the average quarterly rate in this period is 3.1% for both GDP and business sector product) compared to much faster growth in the 6 quarters from Q4/09 through Q1/11, when average growth of GDP was 5.6% and of business sector growth was 6.5%.
• A similar picture of much slower average growth since mid-2011 characterizes the Bank of Israel's State-of-the-Economy index, an indicator of overall economic activity. From July 2011 through July 2012, the average monthly rate of increase of this index slowed to 0.19%, compared to 0.46% in the period from October 2009 through March 2011.
August 2012
GDP growth in Q2/12: Israel and selected developed GDP growth in Q2/12: Israel and selected developed economies economies (real % change from previous quarter, seasonally adjusted)(real % change from previous quarter, seasonally adjusted)
• Despite the ongoing slower GDP growth in Israel in Q2/12, Israel still ranks fairly high in this quarter in the GDP growth ranking of the developed economies. Scandinavian economies continue to place at the top of this ranking but Israel places higher than the major economies of the US, Japan and Germany.
• The weak European economies of Italy, Spain and Portugal continued to register negative growth in Q2/12 and France experienced zero growth for the 2nd consecutive quarter: all this contributed to the negative growth of the EU in this quarter. The UK joined the group of negative-growth economies in Q2/12, for the 3rd consecutive quarter.
• Growth in Israel in Q2/12 was slightly faster than in the previous quarter but in 12 of the economies presented in this graph, growth in Q2/12 was slower than in the previous quarter. In the Czech Republic and in Hungary, growth in Q2/12 was less negative than in the previous quarter but insofar as it remained negative, these economies continue to contribute to the global slowdown.
August 2012
Main components of GDP Main components of GDP (quarterly seasonally adjusted annualized % changes, constant prices)(quarterly seasonally adjusted annualized % changes, constant prices)
• Private consumption continued to grow at a satisfactory pace in Q2/12 (this GDP component tends to react with a delay in a period of slower growth) while growth of exports of goods and services (excluding diamonds and start-up companies) actually accelerated compared to Q1/12, after declining in the last 3 quarters of 2011.
• The clearest signal of the current slower growth in Q2/12 – with implications for future growth – was the decline in fixed asset investment. This GDP component slowed to a 3% increase in Q1/12 after expanding by an impressive average quarterly rate of 15% during 2011.
• Another sign of the current slowdown was the decline in imports of goods and services (excluding defense imports and diamonds) in Q2/12 after the huge jump in the previous quarter though this jump left the increase in imports in the 1st half of 2012 as a whole still very significant (+17.1%). It remains to be seen if the import decline in Q2/12 will continue during the 2nd half of the year.
•Excluding defense imports** Excluding ships and aircraft*** Exc.diamonds and start-up companies**** Excluding defense imports, ships and aircraft and diamonds
August 2012
Sub-components of GDP Sub-components of GDP (quarterly seasonally adjusted annualized % changes, constant prices)(quarterly seasonally adjusted annualized % changes, constant prices)
• The decline in fixed asset investment in Q2/12 characterized all 3 main sub-components – investment in residential construction, in non-residential construction and in machinery and equipment. The decline in residential construction investment is most noteworthy because it comes after a long period of consistently high quarterly increases in this investment sub-component since Q1/09 (see Graph 1 in Chapter 3 of this report below).
• The decline in machinery and equipment investment is the 2nd quarterly decline in a row. In general, declining investment reflects more pessimistic expectations of the business sector regarding current and future growth.
• The ongoing significant increase of private consumption is most evident in non-durables consumption, whereas growth of durables consumption slowed sharply in Q2/12 compared to the previous quarter. However in the first half of 2012 as a whole, both of these consumption sub-components showed an improved picture compared to the previous half year: consumption of durables increased by 6.8% compared to a drop of 13.3% in the 2nd half of 2011, while non-durables consumption increased by 5.3% compared to 2.5%.
August 2012
Copyright © 2008 Insight into Israel’s Economy
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Is unemployment expanding?
August 2012
Main developments: August 2012• The number of job seekers and of claims for unemployment benefits
are showing signs of increase in recent months, through July 2012.• Unemployment in Israel continues to be fairly low in Q2/12, compared
to rates in many other developed economies.• The unemployment rate dropped sharply in July 2012, casting some
doubt on the thesis that unemployment is expanding.
Is unemployment expanding?
August 2012
Job seekers and claims for unemployment benefitsJob seekers and claims for unemployment benefits('000's, seasonally adjusted)('000's, seasonally adjusted)
• The publication by the government's Employment Service during August of the number of laid-off workers in July 2012 – 16 thousand, a 28% increase over June and the highest number in one month since July 2009 – is causing concern about increasing unemployment as a result of the growth slowdown.
• The graph shows a mild trend increase in both the number of job seekers at employment exchanges and the number of claims for unemployment benefits since the low point of October 2011 in both unemployment indicators. There is also a fairly steady though mild increase in the share of initial claims for unemployment benefits since March 2012 – from 20.3% to 22.8% in July: an increasing share of initial claims generally accompanies a slowdown in activity.
• But the mildness of these recent developments plus the fact that around the apparent upward trends, the monthly movements are quite sharp in both directions makes it too early to determine if indeed unemployment is on the rise as a result of the economic slowdown.
August 2012
Unemployment rates in Q2/12: Israel and selected developed economies (percent)
• If Israel continues to rank fairly high in the ranking of GDP growth rates of the developed economies (see Graph 2 in Chapter 1 of this report), where does it rank at present in the parallel ranking of unemployment rates? The answer: fairly close to the bottom of the ranking, with only the economies of Korea, Austria, Japan, the Netherlands, Australia and Germany with lower unemployment rates than Israel in Q2/12.
• The weak European economics of Ireland, Portugal and particularly Spain continue to have very high unemployment rates in Q2/12 and this explains the ongoing high unemployment in the EU as a whole (10.4%).
• Unemployment in the EU has risen steadily over the past 4 quarters (since Q3/11) as rates have increased in Spain, Italy and Portugal over this period and to a lesser extent in France and the Netherlands. In contrast, the unemployment rate has fallen since Q3/11 in the US (from 9.1%.to the present 8.2%) and in Germany (from 5.9% to 5.5%).
August 2012
Unemployment rate and total employment, January-July Unemployment rate and total employment, January-July 2012 2012 (seasonally adjusted)(seasonally adjusted)
• Strangely enough, the latest Labor Force Survey data, published on 30 August, report a significant drop in the unemployment rate in July 2012 – to 6.5%, compared to 7.1% in June: this is the lowest monthly unemployment rate in 2012 up to the present and seems to cast doubt on any upward trend in unemployment.
• Parallel to this development, there was a sharp increase in total employment in July, which looks like a continuation of an upward trend in employment in earlier months of 2012. This combination of rising employment and declining unemployment does not appear to indicate any growing weakness in the labor market.
• The only possible hint of weakness is that the increase in employment in July was concentrated in part-time employment – for the 2nd consecutive month, while full-time employment continued to decline after a sharp drop in June. The share of full-time employment retreated to 63.6% in July compared to 67.6% in May 2012.
August 2012
Copyright © 2008 Insight into Israel’s Economy
www.i-biz.co.il
Construction activity – down, demand - up?
August 2012
Main developments: August 2012• Residential construction starts continued their decline in Q2/12, for the
4th consecutive quarter. • The growth of residential construction investment turned negative in
Q2/12 after a long period of consistent rapid quarterly increases.• Sales of new apartments continued their mild upward trend through
July 2012, accompanied, however, by more time in market prior to sale.
Construction activity – down, demand - up?
August 2012
Residential construction startsResidential construction starts('000 apts., seasonally adjusted)('000 apts., seasonally adjusted)
• Residential construction starts continued their decline in Q2/12 (these data were published on 30 August), for the 4th consecutive quarter: the current quarterly volume of starts is back to the level of mid-2010. The consistency of this year-long decline points clearly to contracting residential construction activity both at present (see next graph) and in the future.
• The decline in residential starts characterized both initiating sectors, the private sector and the public sector: private sector starts dropped by 20% from their peak in Q2/11 through Q2/12. Public sector starts declined even faster from their peak in Q3/12 (-32.4%), but constitute only a relative small part of total starts – less than 15%.
• Non-residential starts (excluding infrastructure: not shown in this graph) slumped in Q2/12 to their lowest quarterly level since Q2/09. In the first half of 2012, non-residential starts were over 17% lower than in the parallel half of 2011.
August 2012
Investment in residential constructionInvestment in residential construction(quarterly seasonally adjusted annualized % changes, constant prices)(quarterly seasonally adjusted annualized % changes, constant prices)
• One of the most contributors to economic growth in recent years has been investment in residential construction. In the 12 quarters prior to Q2/12, this investment component increased at an average quarterly rate of 11.7%, with no quarter showing growth of less than 5% and 6 quarters – with growth of 14% and above.
• In Q2/12, this long run of quarterly increases came to an end with investment declining by an annualized 3.2%, not a sharp increase but nevertheless significant because of its potential to be the first sign of a negative trend.
• It seems clear that this initial decline is a result of the ongoing decline in residential construction starts that began in mid-2011 and has now reached its 4th consecutive quarter (see previous graph). Investment in residential construction reacts to changes in the trend of residential starts with a delay, since the intensity of investment is less at the starts stage than at later stages of construction activity. The continuing decline in starts is expected to lead to a continuing decline in investment during the 2nd half of 2012.
August 2012
Sales of new apartments and months-in-market of sold Sales of new apartments and months-in-market of sold new apartmentsnew apartments
• If current indicators point to contracting construction activity, what is happening with demand for residential housing? Recently, the economic press has been reporting an increase in this demand, based on data on the extension of housing loans by mortgage banks: indeed the value of non-earmarked loans (almost 100% of housing loans) jumped considerably in July 2012, though in January-July 2012 as a whole, the value of these loans was some 13% lower than in the parallel period of 2011, after the 5.4% decline in 2011 compared to 2010.
• Data on sales of new apartments through July 2012 do show a mild upward trend for about a year now, though it is not a clear trend – the monthly data show significant ups and downs, thereby casting doubt on defining this development as an indicator of an expanding demand for housing.
• It is also worth noting that the time (number of months) in market of sold new apartments remained relatively high in July 2012. This indicator of the ease of selling new apartments has also been exhibiting an upward trend for close to a year now, pointing to increasing difficulty in selling these apartments.
August 2012
Glossary of termsGlossary of termsBusiness sector product: includes the product of economic sectors, except for government services, services of non-profit organizations and housing services.Private consumption: consumption expenditure of households and of non-profit organizations servicing households, whose expenditure is mostly not government-financed.Government consumption: includes consumption of individuals financed by the government sector and collective government consumption expenditure. Collective expenditure covers defense, law and order and government administration.Fixed asset investment: includes purchases of durables for civilian use, construction in progress, large-scale building renovations, road building and other infrastructure, and land improvement.Job seekers: Adults (aged 18 and above) seeking work via the labor exchanges of the government’s Employment Service.Unemployment rate: the number of persons who are not currently working but are actively looking for work, as a % of the total number of participants in the labor force.Residential construction starts: includes starts initiated by the private sector (the main component) and the public sector.
August 2012
Growth in Q2/12: less disappointing than expectedGDP and business sector product – Central Bureau of StatisticsGDP growth rates in Q2/12: Israel and selected developed economies- OECD StatisticsMain GDP components- Central Bureau of StatisticsSub-components of GDP- Central Bureau of Statistics
Is unemployment expanding? Job seekers and claims for unemployment benefits - Government Employment Service and National Insurance InstituteUnemployment rates in Q2/12: Israel and selected developed economies - OECD StatisticsUnemployment rates through July 2012 - Central Bureau of Statistics
Construction activity – down, demand - up?Residential construction starts - Central Bureau of StatisticsInvestment in residential construction - Central Bureau of StatisticsSales of new apartments and time-in-market prior to sale- Central Bureau of Statistics
Data SourcesData SourcesAugust 2012
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August 2012
