Sunday, August 16, 2009

Weekly Focus: Consumer Misery

Global Update

  • The “double dip” camp got some extra ammunition this week as US retail sales disappointed badly. The weakness highlights the need for a turnaround in the US labour market to take away the substantial headwind.
  • Germany delivered another positive surprise as GDP rose in Q2 meaning the recession has ended. The same was the case in France. We look for further recovery in the second half of the year as export growth takes off.
  • China continues to show robust growth although the pace will likely be moderate in coming quarters. Both exports and imports are rising strongly at the moment.
  • In Denmark industrial production disappointed, but exports show positive signs. Swedish inflation has been sticky, but inflation pressure will remain low for a long time.

Market movers ahead

  • In the US the first regional business surveys for August and housing data will be in focus. A speech from Fed chairman Bernanke at Jackson hole is also on the agenda.
  • Flash PMI in Euroland and German ZEW are likely to show further rises as the industrial recovery gains momentum.
  • Japanese GDP is likely to show that Japan has also left the recession behind in Q2.
  • In Scandinavia the main figure of interest will be Norwegian GDP.

Global update: Still waiting

Wanted: US consumption

The buyer strike in the US has still not ended. The major disappointment of the week was the retail sales report in the US showing that retail sales failed to increase in July - despite the boost to car sales from the ‘cash for clunkers' scheme. As the recovery is unlikely to take hold in 2010 unless the consumer starts to spend just a little money, the news was clearly a blow to markets and bond yields were immediately sent lower.

Despite the disappointment, real consumption spending is still heading for a decent growth rate in Q3 but all due to the incentive-based rebound in auto sales which is expected to become very strong in August and possibly into September. Beyond Q3, the outlook for consumption hinges on the strength of the labour market and its ability to support real income growth. In this respect, it is encouraging to see nonfarm payrolls improve faster than expected and jobless claims continue its downward trend. We expect job numbers to get into positive territory by year-end and thus look for the consumer headwinds to taper off. However, this is also very much needed. Hence the most important part of the economy to track in coming quarters will be the labour market to judge if the kick-start in H2 09 is enough to get the job engine going again.

German export locomotive getting started

The major positive surprise of the week was the Q2 GDP numbers in Euroland. They revealed that Germany and France emerged from recession during Q2 - about one quarter earlier than we had expected and a lot earlier than for example the ECB and IMF had expected. The main reason is likely to be the ‘cash for clunkers' schemes in these countries, but this scheme has provided a nice bridge to the expected export recovery in the second half driven by improving growth on export markets in Asia and the US. A sharp rise in German export orders recently has given more support to this thesis. Slower inventory reduction and bottoming in investment should also lift the second half growth to levels around 2.5% on an annualised basis.

Chinese growth to slow in H2 - but stay at decent levels

The Chinese batch of key figures this week was overall slightly weaker than expected but only marginally so. The main eye catcher was the decline in new lending of 77% m/m in July. However, this comes after a tripling of state-directed lending in the first seven months this year, corresponding to the same period last year. Chinese authorities are worried about fuelling a new asset bubble and are thus reining in excessive lending. Overall economic indicators point to a continued recovery in H2 09 although at a slower rate than seen in H1. Industrial production rose at 10.8% y/y in July and retail sales rose 15.2% in the same month. Exports are down 23.0% y/y but this is misleading since it is mostly due to base effects from last year. In fact, exports bottomed in February and have risen 27.8% since then.

Market movers ahead


  • In the US focus in the coming week will turn to business and housing data. We receive the first local PMI surveys for August from the New York and Philadelphia areas. We expect both indices to continue to show improvement, adding to the picture of a recovery in the manufacturing sector. Secondly, a string of housing data is due including the NAHB for August, permits and starts and existing home sales for July. The data are expected to reveal further signs of stabilisation in the housing market. The week's main event could easily be the Jackson Hole Economic Symposium, which will see several prominent speakers including Bernanke on Friday. This year's topic is Financial Stability and Macroeconomic Policy
  • The key event in Euroland will be Flash PMI for August. We expect the upward trend to continue at the same pace as previous months, as rising orders shown in hard data should be mirrored in PMI rising above 50 soon. German ZEW is also released and we look for an increase driven by rising equities and more positive growth surprises over the past month. Our estimates are above consensus for both PMI and ZEW.
  • In UK the Bank of England minutes are released but given that the Inflation Report was out this week they are unlikely to contain much new information.
  • In Japan GDP figures for Q2 will be the main topic on next week's agenda. We look for a large increase of 1% q/q.


  • In Norway the market will be looking for the GDP numbers. We expect a small drop of 0.1% q/q in Q2. Otherwise no big news out of Scandi.

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Danske Bank


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