Wednesday, 24 January 2007

Risks shifting to upside

We are moving further and further away from talks of recession.

Yesterday the Conference Board reported a 0.3 percent increase in the US leading index in December. And while the Richmond Fed's manufacturing index fell to -11 in January from -6 in December, it's survey also found that manufacturers in the region were "generally more optimistic in January" and "anticipated that their shipments, new orders, and capacity utilization would rise sharply by mid-year".

Meanwhile, Reuters reports that the composite leading indicator for Canada also rose 0.3 percent in December. In addition, annual inflation edged up to 1.6 percent in December from 1.4 percent in November but the Bank of Canada-monitored core inflation rate fell unexpectedly to 2.0 percent from 2.2 percent. Retail sales were also relatively soft, inching up 0.2 percent in November.

The data look a bit stronger in the euro zone, with French consumer spending on manufactured goods rising 1.3 percent in December and eurozone industrial orders rising 1.4 percent.

And over in the UK, although the Confederation of British Industry said its monthly manufacturing order books balance fell to -9 in January from -5 in December, manufacturers were upbeat about output in the coming months, with that balance rising to +12 in January from +11. And with the average prices balance rising to +19 from +8, it is probably no wonder that Bank of England Governor Mervyn King said yesterday that the "balance of risks to output growth and inflation has shifted towards the upside".

And even Bank of Japan Governor Toshihiko Fukui says that an interest rate hike is needed in Japan, even if the timing is uncertain.


Anonymous said...

MoM the leading indicators are slightly positive, but YoY they are negative for the first time since December 2000. That was right before the Fed cut and the recession started.

lim said...

The Conference Board prefers to look at the six-month change, and that was positive at 0.1 percent. The Conference Board also says that "the leading index still suggests that slow to moderate economic growth is likely to continue in the near term". Obviously, there is a chance of both an upside surprise as well as a downside surprise.

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