Friday, July 24, 2009

World Economic Reports for the week of July 17-24

This week, a compilation of indicators shows that the recovery is tentative at best - more likely, a global bottom has not yet been found. The leading indicators are stronger in some countries; exports are still declining at an annual pace of 20+ percent but stabilizing; and volatile retail sales growth rates are, well, quirky. Must wait for a trend - the US stock market(s) certainly see one coming!

In June, offset by the housing component, the Canadian leading indicator index slides for the second month. In contrast, the US leading indicator took its third consecutive bump. The leading indicator index is more like a coincident index, as many of the components are already known. According to the Conference Board (US), the bump was widespread:
Seven of the ten indicators that make up The Conference Board LEI for the U.S. increased in June. The positive contributors – beginning with the largest positive contributor – were interest rate spread, building permits, stock prices, weekly initial claims (inverted), average weekly manufacturing hours, index of supplier deliveries (vendor performance), and manufacturers' new orders for consumer goods and materials*. The negative contributors – beginning with the largest negative contributor – were real money supply*, manufacturers' new orders for nondefense capital goods*, and index of consumer expectations.
The real money supply is slightly worrisome - the Fed is letting it slip.

Export growth stabilizing in Asia and Europe - the EU (16) (i.e., the Eurozone), ran a surplus in May. On the surface that is great news - exports drive much of the growth in big EU countries (i.e., Germany). But below the surface and on a seasonally adjusted basis (page 5 of the EU's trade report release), the May surplus was driven by a drop in imports rather than an increase in exports. Over the year, exports are stabilizing, but this report shows that global trade with Europe is still very, very weak.

Discounts on food and clothing drove retail sales in the UK up 2.8% over the year in June (see jka economics blog for a nice take on the report). Obviously, though, UK consumers have been quite fickle, as this series has proven to be very volatile in 2009. Same for Italy and Canada - a trend, i.e., at least three consecutive months of data, should be formed before any conclusions can be made.
And finally, the crash of energy prices has brought global inflation into negative territory. Stephen Gordon's take of the Canadian report is good:
"Happily, the good people at Statistics Canada went to great lengths to point out exactly how and why the y/y headline number was negative, so - with the notable exception of the Globe and Mail - journalists were able to put together stories that weren't teeth-grindingly stupid."
And that's all (well, some of) what she wrote, folks.

Rebecca Wilder


  1. Globa and Mail "stupidly"?

    Seems someone has a grind to axe.

    Here's how The Star (Canada's largest circulation newspaper. albeit a shadow of its former self) headlines:

    ["Extraordinary measures" by policy-makers have the economy back on track, but the governor of the Bank of Canada warns Canadians to brace themselves for the eventual return of interest rates to historically higher levels ][...]
    Recession is bust: Carney

    The National Pest, Canada's right of center rant sheet, headlines:

    History's littlest big recession

    Carney's comments (which the Globe quoted) have engendered huge debate and comparison in the Press here.

    I'm merely the messenger at this point, and I repeat what Carney is repeating, his (gist) 'repo rates will remain at .25% until 2010' is caveated by warnings that that is contingent on Inflation remaining contained.

    We'll see....

    I'll comment more later, but the claim for the Globe's headline and stroy was way off the mark.

    I suggest a trawl of Cdn newspapers via

  2. Opening statement by Mark Carney
    Governor of the Bank of Canada
    at a press conference following the release
    of the Monetary Policy Report
    23 July 2009

    Good morning. Senior Deputy Governor Paul Jenkins and I are pleased to be here with you today to discuss the July Monetary Policy Report, which we published this morning.

    * Global economic activity appears to be nearing its trough, and there are increasing signs that activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial system.
    * However, this recovery is nascent. To sustain global growth, effective and resolute policy implementation remains critical.
    * The Bank has long expected that economic growth in Canada would resume in the second half of this year and pick up in 2010. Indeed, growth in Canada should resume this quarter. The dynamics of the recovery projected in today's MPR are broadly consistent with the Bank's medium-term outlook in April.
    * Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth.
    * However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.
    * Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period relative to the April MPR. We now expect the Canadian economy will contract by 2.3 per cent this year and then grow by 3.0 per cent in 2010 and 3.5 per cent in 2011.
    * Total CPI inflation declined to -0.3 per cent in June and should trough in the third quarter of this year. While core inflation held up at 1.9 per cent in the second quarter of this year, the Bank still expects core inflation to diminish in the second half of this year.
    * The Bank expects both total and core inflation to return to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance.
    * A stronger and more volatile Canadian dollar represents an important downside risk to output and inflation.
    * On Tuesday, the Bank reaffirmed its conditional commitment to maintain its target for the overnight rate at the effective lower bound of 1/4 per cent until the end of June 2010 in order to achieve the inflation target.
    * The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR.

  3. Of course my numbers are contaminated (which is an understatement).

    But I still think July is a top. The rate-of-change in money flows (real growth) turns down too fast not to have an impact.

  4. Americans find it difficult to understand that 'decoupling' *is* at work to some extent, and that facets of the World Economy are at work.

    Canada's % of GDP reliance on exports to the US have decreased roughly proportional to the amount they have increased elsewhere. It is no mistake that Canada has been after a free trade deal with the EU for many years. Canada is one of the most export dependent nations in the World (more so than Germany in terms of % of goods, if not value)(comparison to Germany is very non-linear, Australia makes a much better one):

    [July 22 (Bloomberg) -- Australia’s economy is better than the central bank forecast a few months ago, helped by exports to China, the lowest borrowing costs in half a century, and government spending, said Assistant Governor Guy Debelle.

    “Stimulus to our economy has been effective and we’re seeing some benefits from that,” Debelle said at a business luncheon in Melbourne today.

    Policy makers left the benchmark interest rate unchanged at 3 percent two weeks ago for a third month amid mounting evidence Australia’s economy is rebounding from last year’s global financial crisis. Gross domestic product unexpectedly rose 0.4 percent in the first quarter, helped by consumer spending and agricultural exports. In May, the central bank forecast the economy would shrink 1 percent this year.

    “Monetary policy and fiscal policy are really working here,” Debelle told the function organized by the Mortgage and Finance Association of Australia. “The economy is looking better than we thought it might a few months ago.] [...]
    (Australia’s Economy Better Than Forecast, RBA Says )

    The RBA doesn't have text up, but there is an audio file posted on their website:
    [23 July 2009
    Remarks by Guy Debelle, Assistant Governor (Financial Markets) – the Whitlam Institute Forum
    (Speech text not available)]


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