Sustained, though moderate, economic growth in the United States

Leading economic indicators for the United States point towards a sustained, though moderate, growth in the coming months. The Conference Board  monthly index and the Economic Cycle Research Institute (ECRI) weekly index, both released today, suggest that economic activity will continue to expand.

According to the IMF, the Bank of Canada and The Economist poll of forecasters, the US economy should grow at close to 3.0% this year. But, this scenario as downside risks. If energy and food prices keep going up that could add again pessimism in consumer confidence and, consequently, affect their buying intentions. Auto and electronic manufacturing could be affected for longer than initially anticipated by the lack of components or parts coming from Japan. Moreover, residential construction will stay very low based on the housing starts data for the first three months of this year.

So, good prospects on the horizon, not without threatening clouds.

The pace of economic expansion in China could moderate

The Conference Board published April 19 its most recent data on China leading economic index. The mensual and semestrial evolution of the index signal a slowdown in the pace of progression of the economic activity in the coming months. The OECD equivalent index, released April 12, points also towards a moderation of the pace of growth, but it would still increase faster than the long term historical trend of the economy.


All in all, China's economic outlook remains good. The IMF forecasted last week that China GDP growth would be 9.6% in 2011, compared to 10.3% in 2010. A preliminary assessment of  the first quarter growth is at 9.7% (annualised rate).

Inflation is actually the main concern of chinese authorities on the economic front. Different initiatives have been taken to try to slow it down : interest rate increases, higher rate of reserves for the banks to slow the expansion of credit, slight appreciation of the exchange rate of the yuan. The real interest rate remains in negative territory, and analysts expect further increases in interest rates if China wants to succeed in its fight against inflation. 
      

The canadian economy should continue to grow at a sustained pace

The short term outlook for the canadian economy remains good. Advanced signals of its evolution point  towards a sustained progression of the production in the coming months. Statistics Canada leading indicator index increased again in March (0.8%) according to data published today by that organisation; eight of the ten components of the index showed an increase.

Moreover, GDP growth forecasts for Canada in 2011 were recently revised upward by the IMF, the Bank of Canada and The Economist poll of forecasters. The new estimates are close to 3.0%.

World Economic Outlook, According to the IMF and the Bank of Canada

The International Monetary Fund (IMF) and the Bank of Canada (BoC) presented this week their respective assessment of the world economic outlook. Both forecast a world GDP growth of over 4.0% this year : 4.4% according to the IMF and 4.1% according to the BoC. (These estimations are based on a ponderation of the importance of countries' GDP evaluated at the purchasing power parity of their currency. When evaluated at market exchange rates, world GDP growth in 2011 is estimated by the IMF at 3.5 %.) Without surprise, emerging economies will grow faster than the advanced ones this year.  

The BoC, with 3.0%, is slightly more optimistic than the IMF, with 2.8%, as to the economic growth in the United States this year. Both, the IMF and the Bank, revised upward their estimation of GDP growth in Canada, with respective forecasts of 2.8% and 2.9% for 2011. But in its evaluation of the canadian economy, the BoC is not as optimistic as the OECD was last week. The OECD estimated that the canadian economy grew by 5.2% in the first quarter (annualised rate) and will grow by 3.8% in the present one. The respective numbers from the BoC are 4.2% and 2.0%.

As to the risks associated with world economic growth projections, the IMF and the BoC have similar ones : geopolitical developments, commodity prices that could increase further, especially oil, difficulties of refinancing  the public debt in many european countries, etc.

Details at : http://www.bank-banque-canada.ca/fr/
                 http://www.imf.org/external/pubs/ft/weo/2011/01/index.htm

Continuity of Economic Expansion in OECD Countries

The OECD published this morning its composite leading indicators. The most recent data are the February ones. The indicators point towards a sustained economic expansion in most OECD countries in the coming months. There are exceptions, like Spain and Greece.

For emerging economies, a strong expansion is in the cards for Russia and South Africa. In China, economic growth should slow down, but it will remain over the long term historical trend. In India and Brazil, economic growth should be close to the long term historical trend.

Details at : http://www.oecd.org/department/0,3355,en_2649_34349_1_1_1_1_1,00.html

Stockmarkets and Economic Outlook

As a leading indicator of the evolution of the economy, stockmarkets point again towards the continuity of the world economic expansion. The MSCI global index, which regroups developed and emerging economies, is still up since the trough (172.70) of early March 2009. There were short periods of decrease, like recently after the catastrophes in Japan, but the trend stays upward. But, on April the first (last Friday), the index, at 345.66, is still well below its record level (423.26) of October 2007. When separating developed and emerging countries, the respective MSCI indices both follow the same trend as the global one. It will be interesting to see how the stockmarkets will react in the coming weeks to the new round of announcements of  companies quarterly financial results.

To check on the evolution of the MSCI indices go to : http://www.bloomberg.com/


 

World Manufacturing Activity Will Continue to Expand

Surveys conducted in March and covering more than 7500 purchasing managers from close to 30 countries show that the expansion of the manufacturing activity should continue in the world in the coming months. New orders increased again in March, though at a slower pace than in February, according to data from the JPMorgan Global Manufacturing PMI. The pace of growth in new orders moderated in the US, the euro zone and China. Without surprise, new orders received by japanese firms decreased.

Details at : http://www.markiteconomics.com/

Consumer Pessimism is Back in March

Consumer confidence is an important barometer of coming consumer expenditures and, hence, of the economic outlook. In March, the increase in gas and food prices brought back consumer pessimism, notably as to their expectations about the short term evolution of the economy.

In the United States, the Conference Board index, published yesterday, and the Thomson Reuters/University of Michigan index, released last Friday, signal that consumers are significantly less confident in March than in February. In Canada, the equivalent index from the Conference Board of Canada, published yesterday, is also weaker in March than the preceding month.

In Europe, consumer confidence is slightly lower this month compared to February, according to data published by the European Commission. In the euro area, it stays close to the long term historical trend, while in the European Union as a whole, it slips slightly below the historical trend.

Economic Prospects Remain Good for the Euro Area

Leading indicators on the evolution of the euro area economy let believe that growth will continue at a stable and moderate pace in the coming months. The Conference Board published yesterday its monthly leading economic index for the euro zone. The most recent data are the ones for February
( for details : http://www.conference-board.org/data/bcicountry.cfm?cid=10 ).

But the outlook has many pitfalls. Consumer confidence is down in March, and it will be possible to compare it with the sentiment of other economic actors when the European Commission publishes tomorrow its Economic Sentiment Indicator  ( http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm ). Inflation is relatively high, but the challenge is how to achieve lower inflation without impairing economic growth. The refinancing of the public debt in many countries is still a major issue. The unemployment rate remains high in the zone. The outlook is quite unequal from one country to an other.

Recent Conference Board and OECD leading economic indices

Since my last comment on March 14 on the OECD leading composite indices, the Conference Board (CB) published new data on some countries leading economic indices. See here how the two set of indices  compare, the most recent data of the indices being based on last January.

China : the OECD and CB indices point towards a moderate slowdown in the pace of growth.
Spain : both indices let anticipate a slow pace of growth.
United Kingdom : the OECD index signals a stable pace of growth, and the CB index allows to qualify it as being from modest to moderate.
France : regained growth momentum according to both indices.
Germany : continuation of the expansion according to the OECD and slowdown in the pace of growth based on the CB.

The CB published also its index of leading indicators for the United States for which the most recent data are the ones of February, and the index points to a sustained economic expansion in the coming months. The OECD January index also signals that the expansion will continue in that country.

Obviously, those indices do not take into account the consequences on the world economy of the recent catastrophes in Japan.

Details at : http://www.oecd.org/department/0,3355,en_2649_34349_1_1_1_1_1,00.html

                http://www.conference-board.org/data/bci.cfm

Canadian Economy : the Outlook Keeps Improving

Statistics Canada leading indicator index increased significantly in February (0.8%) according to data published this morning. Only one of the ten components of the index registered a decline. The main interrogation for the canadian economy prospects in the short term is to what extent its production will be affected by the consequences on the world chain of production of the lack of pieces and components that are normally produced in Japan. The operators in the stock market seems less preoccupied by that, the S&P TSX having recuperated in the last few days the losses that came in the aftermath of the catastrophes in Japan. 

The economic expansion will continue, based on OECD leading indicators

The OECD published this morning its economic leading indicator indices. They point again towards a sustained economic expansion in its member countries. But, the most recent data are the ones available for last January, so they don't take into account the consequences of the significant increase in the price of oil on the pace of economic growth. The IMF estimates that a $10 increase of crude oil diminishes world economic growth prospects by 0.2 to 0.3 percentage point in one year. Recent catastrophes in Japan will also affect the economic outlook of that country and of its economic partners. Remember that Japan represents close to 9% of world GDP and it is the third largest economy in the world.

Details at : http://www.oecd.org/document/18/0,3746,en_2649_34349_47332626_1_1_1_1,00.html

Return to Economic Growth in Japan

Indexes of leading indicators from the japanese government and the Conference Board (CB) point towards an improvement of the economic conditions in Japan. The Cabinet Office index increased in January for a third month in a row according to data published on March 7. As to the CB index, released March 8, it jumped 1.3% in January, after a slight increase in December, allowing the semestrial evolution of the index to turn to positive territory, after many months in the negative.

The leading indicators let presage a return to growth in Japan after a decline in economic activity during the fourth quarter of 2010. Forecasts for the japanese economy were revised slightly upward recently, the average GDP growth estimate for 2011 passing from 1.5% in early February to 1.7% in early March according to The Economist. Deflation remains a serious problem in Japan, and it continues to affect downward the economic outlook.

Good growth prospects for Quebec

The outlook continues to improve for Quebec's economy. The Desjardins leading economic index increased in January for a fourth month in a row. Signs of economic weakness were particularly present last summer. There was a return to growth in November, with a GDP increase of 0.5% according to the Institut de la statistique du Québec. The evolution of the leading index from October to January lets believe that economic growth will continue in the coming months.

Details at : http://www.desjardins.com/en/a_propos/etudes_economiques/conjoncture_quebec/indice_precurseur/ipd1103a.pdf

Better prospects for the world economy

New orders kept coming in at a faster rate of expansion in the world in February. The outlook for the manufacturing production in the coming months appears very good. "New orders rise at the quickest pace in almost seven years" according to the press release from Markit Economics on the JP Morgan Global Manufacturing PMI.

March 3 update : New business continued also to increase in the service sector. They increased significantly in the United States, the euro zone and India. Surveys realised in February with the purchasing managers show that the world economy should continue to expand in the coming months.

Details at : http://www.markiteconomics.com/

OECD leading indicators

The OECD monthly leading indicator indices, published February 14th, point towards a sustained progression of the economic activity in the coming months in the member countries of that organism. Greece is the only OECD country where the index of leading indicators lets believe to an economic growth inferior to the long term historical trend, if there is growth. For most of the OECD countries, the scenario is one of acceleration of the expansion or one of moderate growth.

For the principal emerging economies non member of the OECD, the evolution of the composite leading indicators suggests a growth slowdown in China and India, an acceleration of the expansion in Russia and a growth close to the long term historical trend in Brazil.

Four countries are added from now on to the thirty-five for which the OECD publishes composite leading indicators : Chili, Estonia, Israël and Slovenia.

 

Canada : pronostic of moderate growth in the coming months

The leading indicator index for Canada continues to grow at a moderate pace. Since last May, the index trend announces a compression of economic growth, and January results, published today by Statistics Canada (SC), are no exception. The manufacturing sector components of the index contribute significantly to its slow pace of growth, but that sector could benefit from the acceleration of the expansion in the United States in 2011, although this is not yet visible in the manufacturers book orders for which data were also released today by SC.

The growth outlook for Canada in 2011 reflects well the recent evolution of the leading indicator index. The IMF forecasts economic growth of 2.3% in Canada this year, compared to 2.9% in 2010. The Bank of Canada forecast is at 2.4%, with a slight acceleration of the pace of growth at mid-year. The Economist pool of forecasters has estimates of GDP growth for Canada ranging from a low of 2.0% to a high of 3.2%, the average being 2.6%.

Japan : difficulties in assessing a clear trend

Again, Japan short term economic outlook is  difficult to assess when using the leading indicator indices. On February 10th, the Conference Board indicated that its index for that country decreased in December (-0.4%), continuing a trend that has been going on for many months. To the contrary, on February the 7th, the Cabinet Office of Japan released its preliminary evaluation of its leading indicator index, and it showed in December a second increase in a row. Let see, on February the 14th, what the OECD will report from its composite leading index on Japan. See the update at the third paragraph.

Nonetheless, 2011 will be a year of slow growth for Japan. In its January update of its World Economic Outlook, the IMF forecasts a GDP growth of only 1.6%. Growth estimates from The Economist most recent pool of forecasters go from a low of 0.8% to a high of 3.1%, the average being 1.5%. Remember that economic growth in Japan in 2010 is estimated at between 4% and 4.5%, after a contraction of 6.3% in 2009.

Update : Japan Cabinet Office (CO) indicated on February 14th that economic growth in 2010 is estimated at 3.9%, and that the fourth quarter showed a contraction of 1.1% (annualised) of the economic activity. It published also on February 17th the complete version of its monthly leading indicator index, and it confirms that the index increased in December for a second month in a row; it lets believe to a return to growth in the first quarter of this year. The evolution of the CO leading index since last spring allowed us to anticipate the slowdown in economic activity at the end of last year. The OECD monthly leading index for Japan did not announce the contraction in the last quarter of 2010, and the data released on February 14th by that organism allow to maintain a pronostic of economic expansion in the coming months. The Conference Board leading index anticipated the slowdown but it still does not show a return to significant growth in the coming months.




 

New positive signals for the world economic outlook

Purchasing manager surveys conducted in January showed new positive signals for the world economic outlook according to the JP Morgan Global Composite Index. New orders increased significantly for both the manufacturing and service sectors. The results of those surveys, especially the new orders, are often used as a component of leading economic indices.

The JP Morgan GCI are based on answers from 11,000 purchasing managers from almost 30 countries representing 83% of global GDP.

Details at : http://www.markiteconomics.com/ 

Is the Baltic Dry Index reliable as a leading indicator?

To know more about that subject, I recommand David Berman comment of February 3 in his blog from The Globe and Mail :

http://www.theglobeandmail.com/globe-investor/markets/markets-blog/baltic-dry-not-what-it-used-to-be/article1893359/

David refers to an article from Liam Denning published on The Wall Street Journal Internet site.

Quebec : a brighter economic outlook

Last summer, the leading economic index from Desjardins for the Quebec economy announced a weak growth or even a stagnation, and, unfortunately, it did happen. From July to October, Quebec GDP decreased slightly three months out of four, showing an increase only in August according to data published by the Institut de la statistique du Québec.

Today, Desjardins released the most recent numbers on its monthly leading economic index and it increased significantly in December (1.0 percent) for a third month in a row; data for October and November were revised slightly upward. Add that the world economic outlook is improving, especially in the United States, and that the canadian economy, as a whole, the main market for Quebec production of goods and services, is expected to show a moderate growth in 2011, then the conditions are there for a brighter economic outlook for Quebec in the coming months.
 

Euro Zone : Slight Improvement of the Outlook

The outlook for the euro zone economy is improving a little taking into account the recent evolution of the Conference Board (CB) leading economic index. That index was up in November (0.6 percent) and December (0.8 percent), after having almost stagnated in September (-0.2 percent) and October (0.2 percent) according to data published January 27. From June to December, the index showed an increase of 3.0 percent, compared to 3.2 percent in the six preceding months. Then, the pronostic is one of a stable pace of growth or moderate growth in the coming months.

Moreover, the European Commission released January 27 the most recent results for its Economic Sentiment Index, one of the components of the CB leading economic index for the euro zone. The ESI is stable in January when compared to December, but in the last months it remained neatly above the average long term trend, notably because the confidence in the industrial sector continued to improve. Consumer confidence has lately followed the average long term trend.

In the January 25 update of its World Economic Outlook, the IMF forecasts a GDP growth of 1.5 percent in the euro area in 2011, with 2.2 percent in Germany, 1.6 percent in France, 1.0 percent in Italy and 0.6 percent in Spain.

Inflation in the euro zone and the financing of the huge public debt in many countries are still major concerns, and they tend to push interest rates upward at a time where other economic fundamentals would not justify such a trend.
 

World Economic Outlook : Update

The world economic recovery, that began  at mid-year in 2009, will continue in 2011 and 2012 according to the International Monetary Fund. That organism published today its most recent estimates of the evolution of the world economy. World GDP growth forecasts for 2011 were revised slightly upward compared to last October (4.4 percent instead of 4.2 percent), notably because the US economy is expected to grow by 3.0 percent instead of 2.3 percent since the adoption of monetary and fiscal expansionist measures at the end of 2010.

Without surprise, the outlook is brighter for emerging economies than for advanced ones. In many emerging countries, there are even signs of overheating, as we can see with the evolution of consumer prices, while in advanced ones difficulties in financing the public debt, especially in Europe, hang on the growth outlook.

Technical point : The 4.4 percent world GDP growth for 2011 is based on the purchasing power parity method which results in more weight for the emerging economies. When using market exchange rates, the forecast for world growth is down to 3.5 percent.

Details at : http://www.imf.org/external/index.htm

United States : acceleration of the pace of economic expansion

The recent evolution of the Conference Board leading economic index supports the forecasts of an economic growth acceleration in the United States in 2011. The CB index, published January 20, increased by 1.0 % in December compared to November, and 3.3 % from June to December compared to 2.4%  the six preceding months. My comment of January 18 examines the growth outlook in 2011 in the United States. Add to that the January 19 forecast from the Bank of Canada of a US GDP growth of 3.3 % this year.

Details at : http://www.conference-board.org/data/bcicountry.cfm?cid=1

Canada : stable pace of growth

The canadian economy should continue to grow at a stable and moderate pace in the coming months, based on the recent evolution of Statistics Canada leading economic index. In December, that index increased by 0.5 % for a third month in a row according to data published January 20.

This pronostic of moderate growth in the economic activity is also retained by the Bank of Canada in its quarterly report on monetary policy published January 19. The Bank forecasts a canadian GDP growth of 2.4 % in 2011. This should not be sufficient to improve significantly the labor market prospects.

United Kingdom : prospects of moderate growth

Leading indicator indices on the evolution of the United Kingdom economy suggest a moderate pace of economic growth in the coming months. The Conference Board index, published yesterday, did not move in November, but, from May to November, it increased by 2.4 %, compared to 3.1 % the six preceding months. The OECD equivalent index points towards a stable pace of economic expansion, just over the long term historical trend.

After an important decrease in economic activity in 2009, the UK economy had a moderate growth in 2010, estimated at close to 2.0 %. Prices are actually going up more rapidly than the target established by the Bank of England, which could bring the Bank to increase its base interest rate sooner than what the economic fundamentals would prescribe. Important restrictions to governmental spending will start next April. The combined effect of eventual interest rates increase and of a slower growth of governmental spending could affect downward the economic outlook. For the moment, expected GDP growth  in the UK, in 2011, go from 1.2 % to 2.5 %, the average being 1.9 %, according to The Economist poll of forecasters (January 8 edition).

United States : economic growth forecasts for 2011

Economic growth forecasts for the american economy in 2011 have been revised upwards during the last few weeks. Fears of an important slowdown, even for some the second phase of a double dip recession, had brought down growth forecasts from last summer to mid-fall. In October and early November, GDP growth estimates for the US economy were only at 2.3 % according to the IMF World Economic Outlook, the average forecast from The Economist poll of forecasters and the Bank of Canada.

A monetary policy even more expansionist (QE2), announced by the Federal Reserve last November, and fiscal measures, also expansionist, adopted by the US Congress last December, brought the economists to recalculate their GDP growth forecasts for 2011. The Economist poll of forecasters average estimate is now at 3.0 %, the same as the average forecast from more than 100 economists that participated, in early December, to a Chicago Fed economic outlook symposium. The Conference Board, which a few weeks ago, forecasted an economic growth of only 1.7 %, made known, on January 11, its revision to 2.5 % GDP growth.

Germany, the fourth in the world for the importance of its economy, is an other country where the economic outlook has been significantly revised  up for 2011. The average GDP growth forecast went progressively from 1.6 % last August to 2.4 % earlier this month (ref. : The Economist, Jan. 8 edition).
   

China : accelaration of the expansion bringing a change in the monetary policy

Leading economic indices from the Conference Board (CB) and the OECD point towards an acceleration of the pace of growth in China in the coming months. From May to November, the CB index, released January 13, increased by 4.7 % compared to 3.3 % in the six preceding months. The OECD index is on a growth path from September to November, after having let believe previously to a downturn.

Taking into account the important raise in consumer prices in China and a better outlook for the world economy, the People's Bank of China changed the orientation of its monetary policy last autumn : it went from "moderately loose" to "prudent". So interest rates increased twice by a quarter of a point on October 19 and December 25. The central bank raised also many times the bank reserves in a way to slow down the supply of credit, the most recent increase happening yesterday, January 14. Will it be sufficient? Many analysts think that interest rates could go up at least twice again by the end of this year. 

Japan leading economic indicators, a special case

Diverging signals come from leading indicator indexes related to short term economic prospects for Japan's economy. The Conference Board index, published January 11, points towards a sharp slowdown of the pace of growth. It decreased in November (-0.6 %) compared to October, and from May to November (-4.1 %) compared to the six preceding months. Four of the seven components of the index went down in November.

The equivalent index from the japanese government, published on January 11 and revised on January 20, increased significantly, going from 97.7 in October to 100.6 in November, after a few months of decline. Almost all the components of the index went up in November. But a one month increase, even if important, is not sufficient to make or change a pronostic.

The OECD composite leading index for Japan, released on January 10, points towards an acceleration of the economic expansion since the last few months.

Japan seems to be the only country where leading indices by different organizations offer such different outlooks. Differences in GDP growth forecasts are also significant. For 2011, forecasts go from 0.1 % to 2.0 % growth, according to The Economist  (January 8 edition) poll of forecasters.
 

Quebec : the outlook is improving

A moderate optimism about the Quebec economy can take place based on the recent evolution of Desjardins leading indicator index. That index increased significantly in October (0.7 %) and in November (0,6 %), according to data published today, after having stagnated from May to September. Moreover, since the adoption, last December, by the US Congress, of expansionist fiscal measures, growth estimates for the US economy were revised upward for 2011, a signal that the prospects are looking better for Quebec exports. Commodity and industrial good prices have increased in the recent months, which also helps to improve the outlook, especially for the regions where the economic activity is based on those products. Even the price of lumber has been up lately. 

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

OECD leading indicators : new encouraging signals for the world economy

The world economic outlook is improving significantly these days. The OECD published this morning its monthly indices of leading indicators for 35 countries, and we can conclude from them that the pace of economic expansion in the world will accelerate in the coming months. Encouraging signs of accelerating economic expansion are coming from the United States, China, Japan and France, respectively ranking first, second, third and fifth in the world for the importance of their economy.

Few countries have an outlook inferior to their historical trend; Brazil is in that group for a fifth month in a row, Greece and New Zealand, by few, are the others. The outlook is improving for Ireland where, for a sixth consecutive month, the leading indicator index points to economic growth superior to the historical trend. In Spain and Portugal, other countries of the euro area where there are difficulties to finance the public debt, there will be a downturn, but the outlook for the coming months is slightly above the historical trend.

Details at : http://www.oecd.org/department/0,3355,en_2649_34349_1_1_1_1_1,00.html