December : lack of consumer confidence

Important barometer of the trend in the evolution of the economy, consumer confidence remains thin and its monthly variations, up or down, have one constant since many months : a lack of confidence, notably in North America. The Conference Board signals today that consumer confidence in the United States is going down in December. On December 23, the University of Michigan informed us that its index of consumer sentiment is improving this month. Down or up, US consumer confidence is well under the comfort zone which would allow private consumption to sustain a healthy economic growth. But, wait! Things might not be as gloomy as these poll results suggest : according to preliminary reports, retail sales in December seem strong, maybe the best December sales since 2005, and tax breaks for 2011 might help a reluctant consumer to shop and spend more through the year.

In Canada, consumer confidence follows a similar trend as in the US. According to data published December 21 by the Conference Board of Canada, it decreased in December compared to November, and it was at the same level as in December 2009.

In the euro zone, consumers are not as morose as in North America, but, after increasing for six months in a row, consumer confidence diminished in December according to data collected for the European Commission and published on December 20; it was the same pattern for the European Union as a whole.

Euro area : prospects of moderate growth

The economic activity will continue to expand at a moderate pace in the euro zone in the coming months, based on the evolution of the Conference Board (CB) leading economic index. That index increased by 0.7 % in November according to data published today by the CB. From May to November, it increased by 3.3 % compared to 4.7 % during the six preceding months.

Forecasts of GDP growth for the euro area in 2011 go from a low of 0.9 % to a high of 2.1 %, with an average of 1.4 %, according to The Economist poll of forecasters (December 11 edition). The difficulties of financing the public debt of many countries and their eventual consequences on the european banking system are the main downside risk to the economic outlook for the euro zone.

France : prospects of moderate growth

France economic expansion will continue, in the coming months, at a moderate and stable pace. The Conference Board (CB) leading economic index, published today, for that country has continued to increase in October, but at a much slower rate than in the preceding months. The slight October increase (0.1 %) bears probably the mark of important strikes and demonstrations that took place during that month. From last April to October, the CB index increased by 2.7 %, compared to 3.6 % in the six preceding months.

The OECD leading index for France, which was published on December 13, points towards a stable pace of growth, higher than the long term trend of economic expansion.

Forecasts for France GDP from The Economist (December 11 edition) poll of forecasters go from a low of 1.0 % to a high of 2.1 % in 2011, about the same as for the euro area. The main risk to the outlook for France is related to the eventual consequences of refinancing the huge public debt of many euro area countries on the european banking system.

    

United States : better outlook

 After having flirted last summer with the possibility of a new recession, the outlook since improved for the United States economy. The Conference Board (CB) leading economic index for that country increased by 1.1 % in November, a fifth increase in a row, according to data published today. Moreover, nine of the ten components of that index were on the upside last month. But, from May to November, the index increased by only 2.2 %, compared to 4,0 % in the six preceding months. That signals a moderate growth insufficient, probably, to improve the outlook for the labor market.

The US economic expansion will keep on going without the contribution of the residential construction industry. Building permits were the only component of the CB index to show a decline in November. Yesterday, the Census Bureau announced that housing starts were at an annualized level of 555,000 in November. It is better than October, but still at historical low levels.

The Economic Cycle Research Institute (ECRI) weekly leading index points also towards the continuity of the expansion. On December 10, the index was at its highest (127.4) since May 7 (131.9). The most recent trough was reached last summer (120.4). The Chicago Fed National Activity Index, which will be published Monday, should confirm the improvements seen from the CB and ECRI indices.
     

China : non stop economic expansion

The Conference Board index of leading indicators for China, published December 14, shows, without surprise, that the economic expansion will keep going on at a strong pace in the coming months. From April to October, the index increased by 5.2 %, compared to 2.6 % in the six preceding months.

The equivalent index from the OECD, published December 13, points towards a good pace of economic expansion based on September and October data; in the preceding months, it let believe to a growth downturn. 

Spain : at best, a weak growth

After improvement in July and August, the Conference Board index of leading indicators for Spain is again going down in September and October, according to data published December 14. The evolution of the index for that country suggests a weak economic growth in the coming months, if there is growth.

The equivalent index from the OECD, made available on December 13, lets believe to a growth over the long term trend for Spain's economy. But that index, in the actual economic cycle, could overestimate the production to come in Spain; it stays actually below the long term trend.

To give an order of magnitude about the economic outlook for Spain, the forecasts of GDP growth by organizations polled by The Economist (December 11 edition) are between a low of -0.5 % and a high of 1.0 % for 2011.

Canada : leading indicators

The index of leading indicators published today by Statistics Canada leads to think that economic growth in Canada will be less than anticipated in the coming months. The index increased by only 0.3 % in November, the same rate as in October. Its recent evolution suggests a growth downturn. Last October, the Bank of Canada predicted a growth of 2.6 % in the first quarter of 2011 and 2.3 % in the second, which today seem optimistic.

OECD leading indicators : the pace of economic expansion will be stable

The OECD published yesterday (December 13) its most recent leading composite indices for 29 of its member countries and six other countries of which China and India. The pace of economic expansion should be, in the coming months, at a level superior to the long term trend in most countries. The only exceptions are New Zealand and Brazil where the trend is to a slowdown, and the Czech Republic and Greece where, after a slowdown, the recent evolution of the leading indices is to a slight recovery in the coming months.

Japan is an enigma. The OECD index points towards a stable pace of expansion, while the leading indices of the japanese government and of the Conference Board send signals of weaker economic growth.

People interested to see the evolution of the OECD indices by specific countries can visualise graphs and data at : http://www.oecd.org/department/0,3355,en_2649_34349_1_1_1_1_1,00.html
 

Leading Indicators : December 6 to 10

Leading indicator indices published recently by the Conference Board (CB) point towards moderate growth in the United Kingdom, a slight improvement of the perspectives for South Korea and a growth slowdown for Japan. The Cabinet Office index of leading indicators gives the same trend than the CB one for Japan's economy. Moreover, the consumer confidence index in Japan decreased in November for a fifth month in a row.

For the United States, the weekly leading index developed by the Economic Cycle Research Institute keeps showing a gradual increase, which means an improvement in the economic conditions in the coming months. The most recent CB forecast for the USA sends a cold shower : it indicates a significant growth slowdown in the next quarters. For 2011 as a whole, growth would be only 1.7 %, compared to 2.8 % in 2010. Not all  forecasters share such a pessimism : the different organizations that are part of the poll of forecasters consulted by The Economist (December 11 edition) have a range of forecasts that go from a low of 1.5 % to a high of 3.2 %. December 27 update : after the adoption by the US Congress of expansionary fiscal measures, the CB forecast for GDP growth in 2011 was revised upward, going from 1.7 % to 2.3 %.

In Canada, housing starts increased in November compared to October, but the trend remains downward. Then, the residential construction industry will not contribute to economic growth in the coming months. More globally, the Bank of Canada expressed again its worries concerning the evolution of consumers debt in Canada and sovereign debt in many countries, and the consequences of their eventual deterioration on the economy. The Desjardins Leading Index for Quebec increased significantly in October after months of quasi-stagnation. A few more months of increase will be needed to conclude at an improvement of the perspectives.

In China, the People's Bank ordered, for a third time in five weeks, an increase in the banks reserves to limit the growth of credit and decrease inflation pressures. Also, for the same purpose, an interest rate increase is expected in the coming days or weeks.

Stock markets indices around the world increased during the week supporting again, as leading indicators, the perspective that the world economy should keep expanding in the coming months. Seventeen of the twenty two most followed indices showed an increase.

During the coming days, leading indicators indices will be published by the OECD, Statistics Canada and the Conference Board (USA and China).

Japan : additional signs of weakness in the economy

Sky is darkening over Japan's economy. Leading economic indexes, published December 7 by the Japanese government and the Conference Board, point towards an important slowdown in economic growth. Yet, third quarter results were good : GDP increase of 3.9 % (annual rate). But, the government leading indicator index is down in October for a fourth month in a row; the Conference Board leading economic index decreases also for a fifth month in the last six.

Details at : http://www.cao.go.jp/index-e.html
                http://www.conference-board.org/data/bcicountry.cfm?cid=5

Quebec Index of Leading Indicators

The Desjardins Leading Index for Quebec's economy increased by 0.7 % in October after 5 months of quasi-stagnation. One significant increase after several months of slow growth signs is not sufficient to conclude to a sustained progression of economic activity in the near future, but, at least, it looks better than what was expected from the reading of the index in the summer months.

Details at : http://www.desjardins.com/en/a_propos/etudes_economiques/conjoncture_quebec/indice_precurseur/ipd1012a.pdf

Leading Indicators : November 8 to 12

Twenty of the twenty-two stockmarkets indexes most followed by analysts around the world were down last Friday compared to the previous Friday. It seems that markets reacted to an expected downturn in China and the return of last summer worries related to the financial and economic situation in many european countries. Commodity spot prices were also on the downside. Is it just a pause or the start of a correction after the important increases in market values since early September? Remember that stockmarkets and many commodities, especially copper and aluminum, are proven leading indicators. 

On November 8, the OECD published its leading indicator indices. The most recent results are based on September data. Its press release puts the emphasis on the "diverging growth patterns in major economies". Countries like China and India send signals of a slowdown. It might not be a bad thing taking into account the recent increases in consumer prices in those countries. For the OECD as a whole, the pronostic is "steady growth". 

The Conference Board published its leading and coincident economic indexes for three countries. The outlook is to a downturn in the United Kingdom and South Korea. For Japan, the CB indexes point towards a slow growth, contrary to the OECD leading index which suggests an expansion.

The weekly leading index for the United States developed by the Economic Cycle Research Institute increased at the end of October and early November; on November 5, it was at its highest level (123,9) since May 21 (125,3).

Consumer Confidence indexes were published for the UK and Japan. In both, the downward trend continued in October.

In Canada, CMHC data on housing starts showed that the residential building industry will not support the economic growth in the coming months. In October, housing starts decreased for a third month in a row.

This week, leading economic indexes will be published for China, the United States and Canada. The semi-annual OECD economic outlook will come out on November 18.

Weekly Review, November 1 to 5

The Federal Reserve announced on November 3 its intent to buy government bonds over the coming months for $600 billion thus creating money to support the growth of the US economy. The European Central Bank and the Bank of England prefered, for the moment, not to change their monetary policy. The Bank of Japan maintained its expansionary strategy adopted in early October and, then, will start buying public and private debt in the coming days. The Bank of India and the Bank of Australia decided to increase their interest rates with the objectives of moderating economic growth and inflation. Those decisions, their consequences, particularly on exchange rates, and the world economic outlook will be part of the discussions at the G20 meeting on November 11 and 12 in South Korea.

Stock markets around the world reacted with strong gains to the Fed decision. The DJIA and the S&P 500 surpassed their respective peak of last April. Spot commodity prices increased significantly, more than 4 % in one week according to the TR/JCRB Index. The Fed decision and most of the quarterly results of public firms being known, we can ask ourselves what will drive the markets in the coming weeks.

In preparation to the G20 meeting, the OECD presented on November 3 an abstract from its Economic Outlook. The expansion will continue in the coming months, but at a slower pace than in the first semester of 2010. Non OECD countries, especially emerging markets, will be the main source of growth. The detailed outlook will be published on November 18.

 
Amongst  leading indicators published this week, positive signals came from the purchasing manager surveys of October. New orders for the manufacturing sector and new business opportunities for the service sector pointed towards faster expansion in many countries. New orders in the manufacturing sector  reported to the Census Bureau in the US increased by a little more than 2 % in September showing that the recovery in the production of goods will keep going ahead in the coming weeks. In Germany, new manufacturing orders went down in September, but the annual trend is still up.

In the coming days, I will comment the OECD leading indicators, due out tomorrow, and leading economic indicators of The Conference Board for Japan, South Korea and the United Kingdom. I will look also at the CMHC data on housing starts.

Weekly Review : October 25 to 29

Consumer confidence is still lacking in the United States and yet it is essential to the sustainability of the economic  recovery. The Conference Board and the Thomson Reuters/University of Michigan indices are still very low in October. The labor market keeps people worrying about the future. It will not improve without a growth of at least three percent for a few quarters, and such a growth is difficult to achieve in the USA without a significant increase in consumption. It is a vicious circle.  

After four months of decline, canadian consumer confidence improved in October based on a Conference Board of Canada survey, but not enough to anticipate a strong increase in expenditures.

In Europe, consumer sentiment is more encouraging than in North America. In September and in October, it is at the same level than the historical average according to surveys conducted for the European Commission.

Many stock markets around the world closed lower Friday than at the end of the previous week. Nothing to worry about taking into account the increases of the last few weeks. The markets are awaiting the results of the FOMC meeting of November 2 and 3 as to the extent of the new monetary expansion (QE2) in the US over the coming months.

Commodity prices are again higher this week over the previous one. Copper is the only notable exception being down slightly. It is the commodity  that analysts watch the most closely as a leading indicator because of its many uses in the production of goods and the building industry.

Leading economic indices were published this week by the Conference Board for Australia, the Euro Area and Mexico. According to those indices, Australia’s economy will keep expanding while there will be a downturn in the rate of growth for the Euro Area and Mexico.   

Weekly Review, October 11 to 15

Stock markets around the world continued their progression during the week, encouraged by good quarterly results from several companies and the prospect of a more expansionary monetary policy in the United States. The index of commodity prices (TR/JCRB index) changed little compared to the previous week.

Indices of leading indicators from the OECD for the month of August, published on October 11, reinforce "... signals of slowing economic expansion..." * in the coming months. However, they do not support a scenario of a new recession in the short term. The Conference Board leading indices, published in recent days, point  towards a slowdown in growth in the United Kingdom and South Korea; for Spain, indicators support the pursuit of a slow recovery while in China, the strong  growth rate is expected to continue. For the United States, the weekly leading index of the Economic Cycle Research Institute, released Friday, declined in the week ending October 8 and stood at its average level of september, which allowed to consider a slight improvement in the economic outlook when compared to August. Also machinery orders in Japan rose strongly in August, suggesting a significant increase in business investment intentions. 

Consumers are not yet in a recovery mode in their perception of the economy, which, of course, influence their buying decisions. Japanese consumer confidence index declined in September for a third consecutive month. Consumer confidence in the United Kingdom was at its lowest in eighteen months in September. Preliminary data for October from the Thomson Reuters-University of Michigan consumer sentiment index show, again, a decline in  consumer confidence in the United States. However, in China, just before important holidays, consumer confidence rebounded in September, after two months of decrease, to match the record level of last February.

Signals from markets diverge significantly from those from consumers concerning their perception of the perspectives in the short term which is not without contributing to the climate of uncertainty about the evolution of the economy and the level of risk associated with purchasing and investment decisions.

 In the coming days, I will look at, inter alia, leading indicator indices for the United States and Canada, two countries whose growth prospects were revised downward by organizations that publish forecasts, notably  the International Monetary Fund.

 * Source: OECD, Press release of  October 11, 2010