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