Last week the US released a range of key economic data, especially towards the end of the week. Most of the data related to August and was, in general, weak and somewhat disappointing. US consensus GDP forecast has, once-again, been revised lower (see discussion below and chart attached).
US retail sales for August rose less than expected, up only 0.1%m/m at a core level. The previous month’s data was also revised lower. Overall, thought, while US retail sales have clearly lost momentum in the past couple of months, they remain well up on a year-ago. In addition, real household consumption should still be stronger in Q3 2011 than the dismal performance recorded in Q2 2011 – which is crucial to the Q3 2011 GDP forecast.
US consumer inflation rose more than expected in August, up to 3.8%y/y at a headline level (was recorded at 3.6%y/y in July) and up to 2.0%y/y at a core level (1.8%y/y in July), its highest level in two years. Part of the increase is explained by ongoing strong demand for rented properties. This was partly offset by a fall in hotel room rates, while new vehicle prices were unchanged. Clothing inflation rose by more than 1.0%m/m for the 4th consecutive month, reflecting the impact of sharply higher cotton prices.
In addition, food inflation was measured at a high 4.6%y/y. A couple of months ago the consensus view was that food inflation would moderate meaningfully, however, there is a now growing concern about food inflation in the US given the problems with some agricultural crops and meat products. US core inflation could remain at 2%y/y or higher for a number of months.
US weekly jobless claims rose disappointingly to 428 000 from 417 000 the previous week. This is the highest level of jobless claims since the last week of June 2011. This will clearly add to the existing concern about a lack of job growth in the US, and the possibility that US employment continues to stagnate.
The University of Michigan consumer confidence index improved marginally in September to 57.8, after plunging to a shock 55.7 in August. While the September reading reflects an improvement, the overall level of confidence remains desperately weak.
The shock plunge in the Philadelphia Fed index recorded in August (-3.07), was partially reversed in September. However, the index remains weak at -17.5. The September reading was below market expectations.
The good news for the week was the better than expected US industrial production data for August, which rose by 0.2%m/m and by 3.4%y/y (manufacturing up 0.5%m/m). The market was expecting no change in the month. US industrial activity has slowed in recent months, but has avoided a return to recession conditions. Employment in the manufacturing sector has increased in eight of the past nine months, while capacity utilisation is at its highest level since August 2008. Certainly not indicative of a recession.
The consensus 2011 growth forecast of the US economy has deteriorated consistently and significantly since the start of the year. Back in February 2011 the consensus forecast was for 3.2% US GDP in 2011. That has now slipped to a mere 1.6% in September 2011. Interestingly, a breakdown of the consensus forecast shows that only one research group (BNP Paribas) expects US GDP to record a decline in economic activity at any time over the next 6 quarters. The consensus forecast is not expecting the US economy to return to recession conditions.
There is currently much discussion in the US and the UK about taxing the rich. This is increasingly likely to become a focal point in SA (given recent statements from various trade union bosses). I have attached a number of charts from President Obama’s recent presentation on the American Jobs Act to highlight some of the discussion points.
This week:
- The focus in SA will be on SA inflation and retail sales data ahead of the MPC meeting on 22 September (we expect rates to remain unchanged).
- In the US the focus will be on the US housing market and the crucial FOMC meeting on 21 September (we don’t expect QE3 to be announced).
- The IMF will release their World Economic Outlook ahead of the IMF/World Bank Annual meetings in Washington over the weekend.
- In the Euro-area the focus will be on the debate around the release of the 6th tranche of Greece’s Economic Adjustment Programme (around $11 billion). Some analysts are referring to the coming week as the “make-or-break week” for Greek government debt. The Greece 2-year government bond yield rose to over 80% during the course of last week, but has since eased to around 58%.
Download the presentation slides