Economic data point to third quarter growth

Most major economies will experience growth in the current quarter if the reports released last week were any indication.

Japan's economy returned to growth in the second quarter, growing by 0.6 percent, and is likely to continue to grow in the third quarter. In its latest monthly report released last week, the Bank of Japan noted that "economic conditions are showing signs of recovery".

The recovery is evident from the indices of business conditions for Japan released last week. The coincident index rose to 89.8 in July from 88.6 in June while the leading index rose to 82.5 from 80.9.

The United States economy contracted 0.3 percent in the second quarter but is likely to return to growth in the third quarter. Economic reports released over the past week or so were quite strong.

US retail sales surged 2.7 percent in August. Part of the jump was due to automobile purchase incentives offered by the government. However, even excluding automobiles, sales rose 1.1 percent.

The strong retail performance corroborates recent consumer sentiment reports. In the previous week, the University of Michigan's consumer sentiment index was reported to have risen to 70.2 in September from 65.7 in August.

Industrial output is also recovering. Industrial production rose 0.8 percent in August, the second consecutive month of expansion after it had risen 1.0 percent in July. Manufacturing output increased 0.6 percent in August. Again, even excluding automobiles, manufacturing output increased 0.4 percent.

Even the housing sector, whose collapse brought the rest of the economy down with it, appears to be recovering. The National Association of Home Builders/Wells Fargo housing market index rose to 19 in September, the highest level since May 2008, from 18 in August. Housing starts rose 1.5 percent in August to the highest level in nine months.

Data on Europe last week, however, were not as positive. For example, industrial production in the euro area reportedly fell again in July by 0.3 percent after having fallen by 0.2 percent in June.

Nevertheless, the European Commission upgraded its forecast for economic growth on the continent and both the eurozone and European Union economies are now forecast to grow by 0.2 percent in the third quarter.

	Real GDP growth forecast (%, quarter-on-quarter) 2009
	1st qtr	2nd qtr	3rd qtr	4th qtr
Euro area	-2.5	-0.1	0.2	0.1
EU27	-2.4	-0.2	0.2	0.1

So it is likely that we will see most of the world's major economies growing again in the third quarter.