US economy hot, Europe getting hot, Japan ... maybe not

The US economy grew faster than expected in the third quarter, based on the advance GDP estimates by the Bureau of Economic Analysis. Bloomberg reports the GDP release as well as inflation-related numbers and consumer sentiment.

U.S. economic growth quickened to a 3.8 percent annual rate in the third quarter as the economy overcame higher energy costs and Hurricane Katrina.

The Commerce Department's first estimate of gross domestic product for the quarter, released today in Washington, exceeded the median forecast and compares with a 3.3 percent pace from April through June...

Wages increased 2.3 percent in the third quarter from the same three months last year, the smallest year-over-year rise since record-keeping began in 1981, the Labor Department said separately. Total U.S. labor costs rose 0.8 percent in the third quarter after a 0.7 percent rise in the previous three months...

Consumer confidence fell this month to the lowest level in 13 years because of energy costs. The University of Michigan said today that its index of sentiment declined to 74.2 from September's 76.9...

The government's personal consumption expenditures index...rose 3.7 percent after a 3.3 percent gain in the second quarter. The index excluding food and energy...rose at a 1.3 percent annual rate, the slowest since a 1 percent pace in the second quarter of 2003...

The GDP price index...rose at a 3.1 percent annual rate, following a 2.6 percent second-quarter gain.

The report also showed that consumer and government spending, at 3.9 percent and 3.2 percent respectively, accounted for much of the acceleration in GDP growth. Private investment, however, showed deceleration.

The economic news out of Europe also pointed towards stronger growth and inflation.

Consumer prices in the 12-nation euro area rose 2.5 percent from a year earlier after rising 2.6 percent in September, the most in more than three years, the European Union's statistics office in Luxembourg said today... Inflation expectations are also rising... Money supply growth...last month also accelerated to the fastest rate since July 2003 as the ECB said its preferred measure, M3, rose 8.5 percent from a year earlier.

[The European Commission] said today its index of sentiment among industrial executives rose to minus 6 in October. A similar gauge of consumers increased to minus 13 and a measure for the services industry reached 15, the highest since July 2001.

It is a cooler picture in the supposedly-recovering Japanese economy.

Industrial production rose just 0.2 percent in September from August, government data showed on Friday, much weaker than the 2.0 percent rise economists had expected. Although manufacturers surveyed in the report forecast gains of 2.4 percent in October and 1.9 percent in November, output for the July-September quarter fell a net 0.3 percent from the previous quarter...

The core consumer price index (CPI) for the Tokyo area, a leading indicator for nationwide prices, was down 0.3 percent in October from a year earlier, compared with a consensus forecast of a 0.2 percent decline. The nationwide core CPI for September was down 0.1 percent from a year earlier, compared with an average forecast for a fall of 0.2 percent...

Average spending by households of salaried workers, a key gauge of overall personal consumption, fell a real 0.4 percent in September from the same month last year and slipped 0.2 percent from the previous month...

But the jobless rate fell to 4.2 percent in September from August's 4.3 percent, matching a seven-year low set in June. The number of employed, at 64.37 million people, was the highest since August 2001.

US September durable goods orders fall, new home sales up

As if fears of rising inflation were not enough, markets are now being hit by fears of a slowing economy.

U.S. stocks dropped on Thursday for a third straight day on a bigger-than-expected decline in durable goods orders... The Dow Jones industrial average fell 115.03 points, or 1.11 percent, to end at 10,229.95. The Standard & Poor's 500 Index dropped 12.48 points, or 1.05 percent, to finish at 1,178.90. The technology-laced Nasdaq Composite Index slid 36.24 points, or 1.73 percent, to close at 2,063.81.

Reuters reports the fall in durable goods orders.

New orders for U.S.-made durable goods sank an unexpectedly deep 2.1 percent last month as aircraft orders plunged, but even non-transportation orders dropped 1 percent, a government report showed on Thursday...

The report also showed a 1.2 percent decline in orders for non-defense capital goods, excluding aircraft, which economists look to as a proxy for future business spending.

The drop in demand for long-lasting manufactured goods was likely to renew concerns that soaring energy prices could be weighing on the economy. Upward revisions to August orders, however, could temper those concerns.

In other economic news, Reuters reports that new home sales were up in September, but the US housing market is also showing signs of cooling.

The Commerce Department said new single-family home sales rose 2.1 percent last month to a seasonally adjusted annual rate of 1.222 million units from 1.197 million unit pace in August -- a sharp downward revision. New home sales were revised lower for June and July as well.

The September sales pace was 0.1 percent slower than a year ago...

While sales rose, the supply of homes available for sale shot up to a record 493,000 at the end of September, surpassing August's high of 478,000. At September's sales pace, that represented a 4.9 months' supply.

The median home sales price fell 5.7 percent to $215,700.

The weak economic data caused US Treasury yields to fall yesterday, but the stock market obviously took no comfort from that, a contrast to the kind of reaction that we got at the height of the bull market, and an indication of how jittery stock investors have become.

Japan's September retail sales and trade surplus fall

Japan's consumer demand may be faltering again. Bloomberg reports.

Japan's retail sales fell in September as consumers spent less on household goods and clothing... Sales dropped 0.8 percent, seasonally adjusted from August, the Ministry of Economy, Trade and Industry said in a report today...

The 3.8 percent annual pace of expansion in consumer spending in the first half, the fastest in more than a decade, may slow in the latter half of the year, said economist Yasuhiro Onakado...

Retail sales rose 0.1 percent in September from a year earlier, while in the third quarter sales gained 0.8 percent from the year-earlier quarter, the trade ministry said.

The trade surplus also fell in September, although exports did well.

Japan's trade surplus...fell 21 percent from a year earlier to 956.9 billion yen ($8.3 billion), the Ministry of Finance said in Tokyo. The median estimate of 31 economists surveyed by Bloomberg was for 832.6 billion yen. Exports rose 8.8 percent, more than the 5.8 percent estimate. Imports grew 17 percent, in line with forecasts.

Surging fuel prices have narrowed Japan's surplus for six straight months...

Japan's exports rose to 5.9 trillion yen, a record. Imports and exports to China and the rest of Asia also increased to an all-time high.

US stocks fall with consumer sentiment but German business confidence rises

After the euphoria on Monday over President George Bush's nomination of Ben Bernanke as Federal Reserve chairman, the US stock market yesterday went back to the uneasy mood that has characterised much of this October's trading.

The Dow Jones industrial average slipped 7.13 points, or 0.07 percent, to end at 10,377.87. The Standard & Poor's 500 Index dipped 2.84 points, or 0.24 percent, to close at 1,196.54. The technology-laced Nasdaq Composite Index fell 6.38 points, or 0.30 percent, to finish at 2,109.45.

The fall in consumer confidence no doubt weighed on the market, as Reuters reports.

The Conference Board said its index of consumer sentiment fell in October to 85.0 from an upwardly revised September reading of 87.5. A Reuters poll of economists had on average forecast a rise in October to 88.1

However, weekly chain store sales provided a more optimistic picture.

Chain store retail sales fell 0.2 percent in the week ended October 22, compared with a 0.4 percent increase the previous week, the International Council of Shopping Centers and UBS said in a joint report.

However, compared with the same week a year ago, sales were up 3.6 percent -- the best showing since early September, after a 3.3 percent rise the preceding week, ICSC and UBS said.

Redbook Research, an independent company, said U.S. chain store sales rose 1.0 percent in the third week of October from the same period in September. Redbook said sales at major retailers rose 3.6 percent on a year-over-year basis for the week ended October 22.

Continued resilience in the housing market would also help.

Sales of existing homes were unchanged last month at a 7.28 million unit pace, with strong post-Katrina sales in the South helping offset weaker activity elsewhere, the National Association of Realtors said.

August sales of previously owned homes were downwardly revised to a 7.28 million unit pace. Analysts had expected overall September sales to decline to a 7.20 million unit pace from the originally reported 7.29 million pace in August.

Existing home sales would have been lower in September without the strong purchase activity reported for areas around the hurricane-hit zone, the Realtors' chief economist said. For example, while sales dropped 85 percent in New Orleans, Baton Rouge reported a 150 percent increase, the group said.

And Calculated Risk highlights rising home inventories and falling prices.

There was good news in Germany yesterday, though.

The Ifo confidence index rose to 98.7, the highest since October 2000, from 96 in September, the Munich-based research institute said in a statement today. Economists expected a reading of 96.1, the median of 40 forecasts in a Bloomberg survey showed. The euro gained and investors increased bets that the European Central Bank will raise interest rates by June.

The report is at least the fifth in the past week to show accelerating growth in the dozen nations sharing the euro. French executives and Italian consumers also became more optimistic this month. Faster growth would add to the concerns of ECB officials who say crude prices that have risen 41 percent this year may filter through to wages and prices, setting off an inflationary spiral.

UK economy, Japanese services and prices in China

Yesterday, the Office for National Statistics reported that the UK economy grew 0.4 percent in the third quarter after gaining 0.5 percent in the prior quarter. The annual rate of expansion was 1.6 percent. As Bloomberg reports, this puts the economy "on pace for its slowest annual expansion in 13 years" and "marks the ebbing of a 12-year expansion, the longest in 200 years".

On the other hand, the expansion in Japan seems to be getting into stride.

Japan's service industries expanded nearly twice as much as expected in August, led by retailers and technology consultants, suggesting the nation may be headed for the longest period of expansion in eight years.

The tertiary index rose 1.7 percent to match a record at 107.5, according to the trade ministry today. The median estimate of 31 economists in a Bloomberg survey was for a gain of 0.9 percent.

Meanwhile, in China, inflation continued to moderate in September, with the consumer price index rising 0.9 percent according to the National Bureau of Statistics (NBS). Government control of energy prices no doubt helped.

There has apparently also been a cooling in the Chinese property market.

China's hottest property market Shanghai may be cooling after the nation's biggest city recorded a 1.2 percent dip in prices in September. At the same time the average price of housing in 70 Chinese cities went up 0.6 percent from a month earlier, the National Development and Reform Commission (NDRC) said... National urban house prices rose eight percent year-on-year in the second quarter, 1.8 percentage points less than in the January to March period.

But risks remain.

[A] report by the Oriental Morning Post, citing the Ministry of Commerce, warned of a clear overheating problem throughout most of the country... After an investigation...the ministry concluded that the current pace of investment conceals massive financial risks, with 50 percent of the financing tied to bank loans.

Inflation fears hit US stocks as global economy continues to show strength

It's back to inflation fears for the US stock market yesterday. As Reuters reports:

The stock market dropped around midday after a report from the Federal Reserve Bank of Philadelphia showed a key U.S. regional inflation measure rose to its highest level since November 1980... The Dow Jones industrial average fell 133.03 points, or 1.28 percent, to end at 10,281.10. The Standard & Poor's 500 Index sank 17.96 points, or 1.50 percent, to finish at 1,177.80. The technology-laced Nasdaq Composite Index dropped 23.13 points, or 1.11 percent, to close at 2,068.11.

Another Reuters report provided the details of the economic data.

The Philadelphia Federal Reserve Bank said its business activity index rebounded to 17.3 in October from 2.2 in September, beating economists' forecasts for a rise to 10.0... with the key prices paid index jumping to 67.6 from 52.7, reaching its highest level since November 1980... prices received... index rose to 32.6 from 8.6... the new orders index, jumped in October to 18.6 after a minus 0.5 reading in September. The employment index also rose sharply, to 17.0 from 2.7 in September...

Meanwhile, first-time jobless claims...fell for the second week in a row, dropping 35,000 last week to a seasonally adjusted 355,000, the Labor Department said... The four-week moving average last week fell to 376,000 from 396,000, its lowest level in more than a month.

However, the New York-based Conference Board said in another report that its index of leading indicators fell 0.7 percent in September to 136.8. The three-month drop follows an unbroken string of advances from April through June and was greater than the 0.5 percent decline Wall Street economists had forecast.

Meanwhile, the economy is not as bad as feared in the UK.

Retail sales rose at more than twice the expected rate in September, denting expectations of further Bank of England interest rate cuts. The Office for National Statistics said on Thursday sales rose 0.7 percent last month. That compared with analysts' forecasts for a rise of 0.3 percent... August's figures were also revised up to a rise of 0.2 percent in sales from the flat reading the ONS reported last month. But higher sales volumes were accompanied by lower prices which the ONS said were on average 0.9 percent lower than a year earlier. The value of retail sales actually fell 0.1 percent on the year, the weakest outcome since records began just after World War Two...

Separately, industry data showed mortgage lending posted its strongest monthly rise in nine months in September, in further evidence that the BoE's quarter-point August rate cut is helping stabilise the housing market. The British Bankers' Association said underlying mortgage lending rose by 5.0 billion pounds last month.

While the economy looks as strong as ever in China, reportedly growing 9.4 percent in the first nine months of the year. Morgan Stanley's Denise Yam and Andy Xie analyse the numbers and conclude:

With the gradual slowdown in exports, fixed investment is now the key pillar of growth for China, sustained by the availability of cheap money that disregards diminishing returns on investment. The supply of liquidity, kept alive by buoyant US house prices and accommodative monetary policies in Japan and Europe, continues to chase quick profits in China’s investment boom and currency optimism. While the Statistics Bureau highlights investment as excessive and "unreasonably structured" in its latest statement, the government still seems reluctant to introduce tougher tightening measures. We continue to await the drying up of this cheap global liquidity, which should trigger a correction in investment and bring China its much needed cyclical adjustment.

But Morgan Stanley's Elga Bartsch is more sanguine about the outlook for European capital expenditure.

Starting with our simple fundamental capex model, we find that, in the last few quarters, capex growth was slightly stronger than underlying fundamental factors would have suggested. On average, actual capex outpaced model predictions by 3/4 of one percentage point... [The ECB's] overall easing campaign since the summer of 2001 has likely lifted capex by nearly 4%... [A]t the present juncture, macroeconomic profits measured by the gross operating surplus and aggregate demand, especially consumer spending, have remained relatively sluggish. By contrast, the marked reduction in the corporate debt burden over the last several quarters has helped capital expenditure. Going forward, we expect all three factors (demand, profits, and debt) to underpin capex further.

US housing starts up, EU industrial production up, tech sales up

The US housing market continues to defy analysts with its strength. Reuters reports.

U.S. housing starts jumped 3.4 percent in September... The Commerce Department said housing starts increased to a 2.108 million unit annual rate in September, as construction on both single-family and multifamily units rose. That outpaced August's upwardly revised 2.038 million unit rate, which was originally reported at 2.009 million units... Permits for future groundbreaking, an indicator of builder confidence, jumped 2.4 percent to a 2.189 million unit pace -- the highest rate since a matching pace in February 1973.

Mortgage applications suggest that the housing market may continue to growth.

[T]he Mortgage Bankers Association said its index of mortgage loan application volume increased 6.1 percent to 737.5 last week despite an increase in borrowing costs on 30-year fixed-rate mortgages to 6.09 percent.

And the strength appears to extend to the US economy in general.

The Fed's "beige book" summary of economic conditions...said U.S. business activity increased across the country in September and early October, but hurricane damage weighed on some regions as high energy costs pushed up prices.

Several regions also reported input cost increases being passed through to retail prices, the Fed said, raising fears of broader inflationary pressures in the wake of Hurricanes Rita and Katrina.

Europe has also been doing quite well of late, with industrial production picking up.

Seasonally adjusted industrial production rose by 0.8% in the euro-zone in August 2005 compared to July. Production increased by 0.1% in July and by 0.5% in June. In the EU25 output rose by 0.3% in August 2005, after increases of 0.1% in July and 0.6% in June.

The strength in the global economy is showing up in corporate results, including those of technology companies, as BusinessWeek reports.

[T]ech-industry sales appear to keep humming along. Third-quarter reports from tech stalwarts point to seemingly insatiable demand for chips, PCs, servers, cell phones, and other consumer electronics.

There are clouds in the technology horizon though. The worldwide semiconductor-equipment book-to-bill ratio fell to 1.03 in September from 1.07 in August, according to VLSI Research Inc, and silicon foundry capacity is projected to be tight in 2006.

But for the moment at least, the world economy is looking wonderful again. At least, that seems to be what the market thinks, with US stocks jumping yesterday.

U.S. stocks rallied on Wednesday, pushing the S&P 500 to its largest point gain in almost six months... The Nasdaq ended with its biggest point gain in more than three months, while the Dow's triple-digit jump was its biggest point gain in about one month...

The Dow Jones industrial average gained 128.87 points, or 1.25 percent, to end at 10,414.13. The Standard & Poor's 500 Index rose 17.62 points, or 1.50 percent, to finish at 1,195.76. The technology-laced Nasdaq Composite Index climbed 35.24 points, or 1.71 percent, to end at 2,091.24.

More inflation, no sign of economic weakness

It's more inflation yesterday.

The US producer price index jumped in September, as reported by Reuters.

U.S. producer prices shot up by an unexpectedly large 1.9 percent last month, the biggest gain in more than 15 years, as energy costs surged in the wake of hurricanes that devastated the U.S. Gulf Coast, a government report showed on Tuesday.

However, outside of volatile food and energy costs, prices received by farms, factories and refineries rose a relatively subdued 0.3 percent, the Labor Department said...

Over the past year, producer prices have increased a hefty 6.9 percent on the back of rising energy costs, the biggest 12-month gain since the period ended November 1990. In contrast, so-called core prices have gained just 2.6 percent.

But US consumers appear unfazed by the rise in prices.

So far, U.S. consumers have appeared resilient in the face of higher energy costs and retail sales appear to be getting a boost this month as cooler weather boosts apparel purchases.

The International Council of Shopping Centers and UBS said in a report on Tuesday that U.S. chain store sales rose 0.4 percent in the week ended October 15, the fourth straight gain.

Separately, Redbook Research said chain store sales so far in October have risen 1 percent compared with the same period last month and were up 3.7 percent from year-ago levels.

Foreign money undoubtedly helps sustain consumer demand.

Separately, the Treasury Department said net flows of capital into U.S. assets swelled to $91.3 billion in August. It was the largest inflow in 16 months and suggested the United States was having little trouble finding the overseas capital it needs to balance its books.

So does resilient housing prices, which looks likely to continue, based on the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) reading.

The HMI rose two points to 67 in October, returning to the same level it hit in August but still off the year's cyclical high of 72, set this June. The gain marks an end to a three-month trend of downward movements.

There was also inflation data from Europe.

Euro-zone annual inflation was 2.6% in September 2005, up from 2.2% in August. A year earlier the rate was 2.1%. Monthly inflation was 0.5% in September.

EU25 annual inflation was 2.5% in September 20053, up from 2.2% in August. A year earlier the rate was 2.1%. Monthly inflation was 0.5% in September.

And from the UK.

The Office for National Statistics said consumer prices rose 0.2 percent on the month, pushing up the annual rate to 2.5 percent, the highest rate since comparable records began in 1997 but below the 2.7 percent analysts had predicted...

A rise in petrol prices of over 4.6 pence per litre in September, which compared with a rise of just 0.1 pence a year earlier, was to blame for the rise in inflation, the ONS said...

[A]nnual growth in the core CPI, which strips out food, energy, tobacco and alcohol prices, held steady at 1.7 percent in September.

With all this global inflation, it's no surprise that the Bank of Canada hiked interest rates.

The Bank of Canada pushed up its key interest rate by a quarter of a percentage point Tuesday morning and signalled that more rate hikes are coming.

The widely expected increase in the central bank's overnight lending rate, now at 3.0 per cent, was the second in as many months.

A strong Canadian economy obviously mattered too.

Driven by strong domestic demand, the composite leading indicator posted a 0.3% increase in September, matching the gain in August. Household spending continued to dominate. Seven of the ten components rose, the same as in August.

Meanwhile, Japan confirmed its continuing recovery, based on the diffusion indices for August.

The diffusion index of coincident indicators was revised downward to 80.0 percent from its earlier reading of 88.9 percent, released Oct. 7, the [Cabinet Office] said... The leading diffusion index, which predicts economic activities about six months down the road, came to 100.0, while the lagging diffusion index, which shows activity in the recent past, stood at 75.0.

Germany is also seeing some recovery in confidence, although by less than expected.

A gauge of institutional and analyst expectations increased to 39.4 from 38.6 in September, the ZEW Center for European Economic Research said today in Mannheim. Economists expected a reading of 42, according to the median of 41 forecasts in a Bloomberg survey...

German business sentiment and expectations improved in the past four months, a survey of more than 25,000 companies by the DIHK industry and trade group showed today.

But Germany is facing some inflationary pressures too.

Optimism is increasing even as gasoline prices soar... Producer prices increased 4.9 percent in the year to September, the highest annual rate since April 2001, the Federal Statistics Office said today.

These developments in the global economy seem compatible with the views held by fund managers, based on a survey by Merrill Lynch. These views can be summed up as follows:

• Favour Japanese equities over American equities.
• Favour stocks over bonds.
• Expect a rise in market volatility.
• Shorten investment time horizons, lower risk.

UK property stabilising

There has been a lot of talk about inflation lately. And no wonder; it's hard to keep prices down, especially UK property prices, it seems.

House prices see first rise since June
Average asking prices on homes rose for the first time since June from mid-September to mid-October, adding to growing evidence that the property market is stabilising, according to a survey on Monday.

Property web site Rightmove said house prices rose by 0.5 percent in its September 11 to October 8 survey compared with the previous period, the biggest rise since April...

House prices fall at slowest pace in 14mths-RICS
House prices fell at their slowest pace in over a year in the three months to September and are expected to rise for the first time in 1-1/2 years in the next three months, a report showed on Tuesday.

The Royal Institution of Chartered Surveyors said its seasonally adjusted house prices balance for the three months to September improved to -21 -- its highest in 14 months -- from an upwardly revised -25 in the three months to August...

The US economy also appears to be buoyant, at least in the New York area, according to the October Empire State Manufacturing Survey. The general business conditions index fell but remained positive at 12.1. The new orders index jumped from 11.6 in September to 24.9 in October. The prices paid index rose from 53.9 to 57.3, near record highs. The prices received index also rose from 10.1 to 15.6. The future general business conditions index, however, fell from 38.1 in September to 32.6 in October, although future price indexes remained high, with the future prices paid index at 71.9 and the future prices received index at 34.4.

However, things don't look so good for Singapore's economy, which got a double dose of bad news yesterday.

Singapore's non-oil domestic exports fell a seasonally adjusted 3.3 percent from August, trade agency International Enterprise said, against forecasts for a gain of 2.7 percent.

Retail sales fell a surprising 2.3 percent in August on a seasonally adjusted basis, well off expectations for a month-on-month rise of 2.0 percent forecast in a Reuters poll.

Bull market threatened by rising inflation and interest rates

The global bull market in stocks is now between two and a half to three years old. Despite the gloomy prognostications from bears, stock markets have continued to hit new cyclical highs over the past few months, thanks to a global economy that has surprised many with its resilience as well as stubbornly low interest rates. Looking forward, the question is whether the favourable conditions of the past few years will persist and continue to support stocks.

Read more.

US CPI jumps 1.2 percent in September

Plenty of US economic data yesterday. Reuters provides a summary of the news, including inflation:

U.S. consumer prices soared 1.2 percent last month, the biggest gain in more than 25 years, as hurricanes led to a record surge in energy prices... The increase in the consumer price index was the largest since March 1980, the Labor Department said. But outside of food and energy, prices were tame -- rising a scant 0.1 percent for the fifth straight month and offering hope that broad-based inflation could be averted. The steep energy price rise has pushed overall prices up 4.7 percent over the past year, the biggest jump since 1991.

...retail sales:

A separate government report showed U.S. retail sales rose a lower-than-forecast 0.2 percent last month as car sales tumbled. Outside of autos, however, sales climbed a healthy 1.1 percent, partly reflecting the big gain in gasoline prices... sales outside of the volatile auto and gasoline sectors notched a healthy 0.6 percent advance.

...industrial production:

[A] report from the Federal Reserve...showed industrial production plummeted 1.3 percent last month, the biggest drop since January 1982.

...and consumer sentiment:

The University of Michigan's preliminary index of consumer sentiment fell unexpectedly in early October to its lowest level in 13 years, extending a September decline, according to sources who saw the subscriber-only report.

David Altig provides an interesting analysis of the inflation data.

[T]he trend in the headline CPI is moving up, the trend in the CPI ex food and energy is moving down, and the median is hanging in right where it has been most of the year.

And, quoting Mike Bryan at the Cleveland Fed:

[W]e have a very "tail heavy" distribution of price adjustments--prices are showing either troubling increases, or softness, but very few are in the middle, moderate range.

While energy was the chief culprit in pushing up headline CPI, apparel helped hold it down. The BLS website shows that apparel fell 0.1 percent over the previous month and 0.6 percent over the previous year. News that the textile trade talks between the US and China have failed might have a bearing on this reading in the months ahead.

But China's input is more than just in textiles. Morgan Stanely's Andy Xie warns that China's deflationary impact may be abating, albeit temporarily.

China is not deflationary for the global economy at present, I believe. It could be an inflationary factor for one or two years due to cyclical and political reasons. Over time, China may become deflationary again when it moves up the value chain to re-price higher value-added products with Chinese costs. What matters to the market now is that China’s impact on global economy is becoming inflationary

The deflation winners, mainly big-box retailers, could see their gains reversed in the next year or two. Also, the major central banks may have to tighten into a slowing global economy, as the China factor no longer holds inflation back.

But if he is right, the impact has not appeared in the import price data yet. While overall import prices rose 2.3 percent in September, no thanks to energy imports, prices of goods imported from China fell 0.2 percent in the month, and 1.2 percent over the previous year.

August US trade deficit up

The US Department of Commerce announced yesterday that the US trade deficit for August was US$59.0 billion, up from a revised US$58.0 billion in July. August exports hit a record $108.2 billion, US$1.8 billion more than July exports of US$106.4 billion. Imports also hit a record US$167.2 billion, US$2.9 billion more than July imports of US$164.3 billion.

Brad Setser analyses the trade data and concludes that relative prices do matter.

Falls in the dollar work with a lag, and US exports...are benefiting from the weak dollar at the end of last year... The other story continues to be the absence of any growth in non-oil imports. That too may reflect the lagged impact of dollar weakness.

This chart would suggest so, although other factors are obviously also at play.

Fall in Japanese confidence, current account surplus as BoJ keeps zero interest rates

Japanese household confidence dropped in the third quarter, according to a report released yesterday.

An index of confidence among households with two or more people fell to 44.8, seasonally adjusted, in the third quarter from 45.4 in the second, the Cabinet Office said today.

But stronger business sentiment provides a basis for growth in Japan, according to the Bank of Japan.

"Investment has continued to increase against the background of high corporate profits and a modest improvement in business sentiment," the Bank of Japan said in its monthly report for October, released in Tokyo today. The bank forecast an end to seven years of falling prices this year.

Halting deflation would put expansion in the world's second-largest economy on a firmer footing after four recessions in 15 years. The report suggests Bank of Japan board members, who voted by a 7-2 majority earlier today to leave interest rates at zero, are closer to ending that four-year-old policy.

If Japan moves out of deflation, higher oil prices would be an important factor. It certainly has been a factor in the narrowing of Japan's current account surplus in August.

Japan's current account surplus narrowed as rising oil prices pushed up the import bill of the world's second-largest economy.

The current account surplus narrowed 15.6 percent to 1.22 trillion yen ($10 billion), compared with the same month a year ago, the Ministry of Finance said in a report released in Tokyo today. The median forecast of 26 economists surveyed by Bloomberg News was for the surplus to shrink 19 percent to 1.16 trillion yen.

Nikkei jumps on machinery orders, China's trade surplus falls

Japan's stock market is having a good run of late. Strong machinery orders kept it going yesterday. AP reports:

Japan's benchmark stock index notched its biggest one-day point gain in more than three years Tuesday as traders bought steel and bank issues on upbeat machinery order figures.

The Nikkei 225 index jumped 328.97 points, or 2.49 percent, to 13,556.71 points on the Tokyo Stock Exchange, registering the biggest single day point gain since Aug. 7, 2002, when the index rose 333.38 points...

Traders bought steel and banking issues, with market sentiment cheered by robust August core machinery orders, which rose 8.2 percent in August from July, beating market expectations of a 2.5 percent rise.

Elsewhere in Asia, China saw its trade surplus fall in September.

China's trade surplus stood at US$7.57 billion in September, the smallest monthly figure since May, said the latest statistics published yesterday by China's General Administration of Customs.

Exports reached US$70.2 billion last month, up 25.9 per cent year-on-year, while imports reached US$62.6 billion, up 23.5 per cent from the same month last year.

Stalemate in textile trade talks between China and the US may put a damper on further Chinese export growth. Nevertheless, a research group has raised its 2005 growth forecast for China.

A government research institute raised China's growth forecast this year to 9.2 percent but called for an easing of monetary and fiscal policy to boost domestic demand as the economy slows in 2006.

The Macroeconomic Research Institute under China's top planning body, the National Development and Reform Commission, increased Tuesday its forecast for gross domestic product (GDP) growth from 8.8 percent.

The institute predicted the economy will expand more slowly next year, possibly entering an "adjustment period," with GDP rising by about 8.5 percent.

Meanwhile, the UK reported its trade balance for August.

Britain posted its largest ever trade deficit in August following huge insurance claims to be paid by Lloyds of London after Hurricane Katrina.

The balance of trade in goods and services was £5.3bn in the red compared with £3.9bn in July, pushed lower by the Office for National Statistics's estimates that the cost of Hurricane Katrina will force Lloyds to pay-out £1.4bn to the owners of property destroyed by the storm.

In the three months to August, the value of exports and imports grew by 7.3 and 7.4 per cent respectively compared with the same three months a year earlier... After adjusting for inflation, the growth in the quantities of exports and imports was more favourable since the prices of goods charged to EU customers have risen faster than the prices of imports from the EU.

Over in the United States, the Federal Reserve released its minutes of the September FOMC meeting. William Polley dissects the minutes.

Good data from Germany, France, but Delphi underlines risks

There was some good news for Europe's economy yesterday, apart from Germany settling on its chancellor.

German exports, the mainstay of the nation's economic expansion, rose in August by the most since January as a drop in the euro helped bolster demand. Exports, adjusted for working days and seasonal changes, gained 3.5 percent after rising 0.9 percent in July, the Federal Statistics Office in Wiesbaden said today in a statement...

Germany's trade surplus narrowed to 11.6 billion euros ($14.1 billion) in August from 14.5 billion euros in July, the statistics office said. Adjusted for seasonal effects, the trade balance was 12.7 billion euros in August. Adjusted imports gained 6 percent after rising 3.6 percent in July, the report showed...

German industrial production fell 1.6 percent in August, its first decline in three months, the Economy and Labor Ministry said Oct. 7. A day earlier the ministry reported that factory orders fell 3.7 percent in August, the first decline in four months, led by a drop in demand from abroad...

In France industrial production rose in August at the fastest pace in almost a year, suggesting Europe's third-largest economy is picking up from a second-quarter slowdown. French factories, utilities and mines increased production by 0.8 percent from July, when the output dropped a revised 0.7 percent, national statistics office Insee said in Paris today.

However, the UK economy is seeing some unpleasant contradictions as producer prices rise:

The cost of goods leaving British factories increased for the third consecutive month in September, as prices of gasoline and diesel recorded their biggest rise in more than five years.

Factory-gate prices, which are not adjusted for seasonal swings, increased 0.7 percent in September after rising 0.3 percent in August, the statistics office said today. That was above the median estimate of 0.3 percent in the month, in a Bloomberg survey of 27 economists. The annual rate increased 3.3 percent, the highest since April.

...but house prices moderate:

The UK house price inflation rate fell from 4.0 per cent in July 2005 to 2.8 per cent in August 2005... The UK price between July and August was effectively unchanged...

...and consumer demand falters:

U.K. retail sales fell for a sixth month in September, the British Retail Consortium said, a sign that a slowdown in consumer spending may be worsening.

Sales in stores open at least a year fell 0.8 percent from September last year, the BRC, a London-based lobbying group that represents 80 percent of U.K. retailers, said in an e-mailed report today. That followed a 1 percent decline in August.

Although there were no significant economic data from the US yesterday, it was nevertheless an eventful day in financial markets.

U.S. stocks slid on Monday, with the Dow and S&P 500 hitting their lowest levels in about five months, after General Motors Corp. said auto parts supplier Delphi Corp.'s bankruptcy filing could cost it as much as $12 billion.

The Nasdaq Composite Index slipped to a three-month low, dragged lower by technology shares after Xilinx Inc., a maker of programmable microchips, cut its sales estimate for the September quarter, citing weakness in Asia-Pacific demand and other factors. Xilinx shares fell 16 percent to $22.77.

Delphi's bankruptcy was deemed significant enough to elicit a commentary from Morgan Stanley chief economist Stephen Roach.

Delphi’s bankruptcy is a big deal. It is emblematic of a new set of pressures bearing down on the US. The global rebalancing framework that I continue to embrace suggests that the world’s growth and asset return dynamic has only just begun a major tilt away from the US and dollar-based assets. If that’s the case, America will have little to offer in a low-return world for risk-averse and yield-hungry investors. Could Delphi be the long awaited wake-up call that drives this realization home?

And even Brad Setser was moved enough to weigh in with his own comments, including the following:

I suspect the real risk here is not the most obvious risk. Further trouble from US-based auto makers and auto parts suppliers should not be a surprise to anyone. A real surprise might come from firms in currently strong sectors - sectors whose growth must slow in any global "rebalancing" scenario.

And the point could be extended geographically too -- a surprise might come from countries with strong economies. See, for examples, Morgan Stanley's Andy Xie on Korea and Chetan Ahya on India.

And along somewhat similar lines, see also Barry Ritholtz's post "Insolvency Epidemic".

Singapore 3rd quarter GDP up 6 percent

Singapore's economy grew 6 percent in the third quarter year-on-year, according to the Ministry of Trade and Industry's advance estimate. This is higher than the second quarter's 5.4 percent year-on-year growth and economists' forecasts of around 5 percent growth. However, on a quarter-on-quarter seasonally-adjusted annualised basis, growth was 3.2 percent, indicating a slowdown in growth.

Overall GDP growth was boosted by a strong performance in manufacturing, which grew 10 percent year-on-year. In September, Singapore's PMI had risen to 53.1 from 52.2 in August, indicating that manufacturing growth is likely to be sustained and support economic growth in the coming months.

Katrina hits US jobs but economists see positives

The US economy suffered net job losses in September, no thanks to Hurricane Katrina. Reuters reports.

The U.S. economy shed 35,000 jobs in September, fewer than feared despite Hurricane Katrina...a Labor Department report on Friday showed... However, the national unemployment rate rose to 5.1 percent last month -- highest since May -- from 4.9 percent in August... The department indicated that September payroll growth likely would have been in line with the 194,000 jobs-a-month average that have been created over the past year if not for the blow delivered by Katrina...

The department revised up its estimates for job growth in July and August by a combined 77,000. It said there were 211,000 jobs created in August instead 169,000 and 277,000 in July rather than 242,000...

In a measure of Katrina's direct effect on the job market, the department said some 80,000 jobs were lost in leisure and hospitality industries -- not surprising since hard-hit New Orleans is tourist magnet -- compared with a 37,000-job gain in August. Retail industries lost 88,000 jobs last month and factories 27,000 -- a fourth month in a row for layoffs on the factory floor. There were some areas in which jobs were created last month, including 52,000 new jobs in professional and business services, 49,000 in education and health and 31,000 in the government.

Reactions to the numbers picked up by Reuters were positive. Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania:

The good news is that job growth had been picking up and that should cushion the fall caused by the hurricanes... [T]his is just another reason to keep hiking rates.

Bill Cheney of John Hancock Financial Services Inc. in Boston:

Hurricane Katrina undoubtedly devastated individuals and communities in the Gulf Coast, but on a macro-economic basis it's clear that the U.S. economy has more than enough momentum to absorb the hit and recover quickly.

The macroblog agrees.

To me, that is starting to look like pretty healthy net job creation.

And across the Pacific, there is more positive news from Japan.

The index of coincident economic indicators stood at 88.9 percent after sliding to 30.0 in July, the Cabinet Office said in a preliminary report...

The index of leading indicators, predicting economic developments about six months down the road, came to 100.0 percent with all of 10 indicators available in the preliminary report showing positive readings. It is the first time for the index of leading indicators to post 100 percent since December 2000.

But it is not so positive across the Atlantic.

Industrial production in Germany, Europe's largest economy, fell for the first month in three in August as near-record oil prices damped the economic outlook. Production at factories, utilities, construction sites and mines declined 1.6 percent from July, when it gained 1.2 percent, the Economy and Labor Ministry said in Berlin today.

The OECD composite leading indicators provide another perspective on the economic outlook.

Weak to moderate activity lies ahead in the OECD area, according to the latest composite leading indicators (CLIs). August data show weakening performance in the CLI’s six month rate of change in the United States and Canada but improved performance in the Euro area and Japan.

Interest rates unchanged in Europe

The economic news from Europe turned a little gloomier yesterday.

The European Central Bank kept rates unchanged yesterday.

The European Central Bank kept interest rates at a six-decade low for an 28th month to foster economic growth in the euro region even as higher oil costs push up consumer prices faster than the bank desires.

Policy makers, who met in Athens today, kept the benchmark interest rate at 2 percent, the lowest level since at least 1946. ECB President Jean-Claude Trichet said the bank is showing "strong vigilance" against inflation, the first time he's used such language in a press conference since November 2004.

But the latest economic data were weak

European retail sales fell in September for the first month in three, according to a survey of retail purchasing managers for Bloomberg LP by NTC Research Ltd. released today. Factory orders in Germany, Europe's largest economy, fell for the first time in four months in August, a government report showed today.

And economists are downgrading growth forecasts in Europe.

The euro zone economy will grow a less-than-expected 1.2 percent this year due to expensive oil, 10 European forecasting institutes said on Thursday, warning that a further, permanent oil price rise could do more damage. The Euroframe network of forecasters said the new forecast was 0.2-0.3 percent below its last estimate six months ago. It also forecast growth in 2006 at 1.8 percent.

Earlier on Thursday, the Commission also said economic growth in the euro zone would be 1.2 percent in 2005, lower than a previous forecast of 1.6 percent, despite signs of a recovery in the second half of the year.

It is a similar story in the UK.

The Bank of England left interest rates unchanged at 4.5 percent on Thursday, but analysts are hotly debating when and what the central bank's next move will be...

Industrial production unexpectedly fell a sharp 0.9 percent in August, which could significantly cut overall economic growth in the third quarter.

But house prices rose a strong 1.2 percent in September, the fourth consecutive monthly rise, according to the Halifax, the nation's largest mortgage lender, in a sign the August rate cut may already be working.

Third quarter growth is estimated to be weak.

Economic growth slowed to its weakest rate in four months in the third quarter of 2005 as industrial output waned, the National Institute of Economic and Social Research said on Friday.

The think-tank said the economy probably grew by 0.3 percent in the three months to September, down from 0.5 percent in the three months to August and the weakest rate since May.

ISM non-manufacturing index disappoints, other data more positive

US September data are throwing up a number of surprises.

Following the surprisingly strong ISM manufacturing index for September, the non-manufacturing index for the month has turned out surprisingly weak.

Reuters reports this and other news from the US.

The Institute for Supply Management's U.S. services index fell to 53.3 in September from 65.0, far below Wall Street's forecast of 61.0 and the lowest since April 2003... New orders, exports orders and employment in the services sector all fell in September... The services prices paid index was 81.4, the highest since the index was launched in 1997...

[O]utplacement firm Challenger Gray & Christmas said U.S. companies announced 71,836 layoffs in September, up marginally from 70,571 in August but 33 percent below a year ago and not as high as feared...

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended September 30 slipped 1.1 percent to 713.5, its lowest level since late May... The MBA's seasonally adjusted purchase mortgage index fell 1.9 percent. The index...was down for a third straight week to its lowest level since the last week of August.

Meanwhile, the National Association of Realtors said pending sales of existing homes hit a record in August... The Pending Home Sales Index for August hit 129.5, up 3.2 percent from July and 4.7 percent higher than a year ago.

The macroblog noted the slip in the non-manufacturing index, but also pointed out stronger data from other sources, as reported by Bloomberg:

Consumer spending was just as strong in the weeks after Katrina devastated the Gulf Coast as before the storm, according to figures from MasterCard, the No. 2 U.S. credit card company. Retail sales other than gasoline and autos rose 6.6 percent in the week ended Sept. 16 from the year-earlier period, unchanged from five weeks earlier, the Purchase, New York-based firm said.

...and by Reuters:

Redbook Research, an independent company, said sales in the fifth and final week of September rose by 3.5 percent on a year-over-year basis.

The International Council of Shopping Centers and UBS, in a joint report, said sales were 0.6 percent higher in the week to Oct. 1 after rising just 0.1 percent in the prior week and falling in the previous two weeks before that. Compared with the same week a year ago, sales were up 3.0 percent, after a 2.8 percent percent rise in the prior week.

Reuters also reports some slowdown for the service sector in the UK:

The Chartered Institute of Purchasing and Supply/RBS said its services Business Activity Index fell to 55.0 last month from 55.2 in August...

...but the euro-zone had an upside surprise:

The CIPS/RBS euro zone business activity index rose more than expected to 54.7 in September from 53.4 in August.

There was also healthy growth in retail trade in Europe, according to Eurostat.

In August 2005, compared to August 2004, the volume of retail trade grew by 2.0% in the euro-zone and by 2.2% in the EU25. Compared to July 2005, the retail sales index rose by 0.9% in the euro-zone and by 0.7% in the EU25.

Manufacturing strong in August

There is yet more evidence of strength in manufacturing.

Factory orders in the US rose in August.

New orders at U.S. factories rose 2.5 percent in August... The Commerce Department said the increase in factory orders reflected a 3.4 percent increase in demand for durable goods...and a 1.6 percent increase in non-durable goods. The durable goods figure was revised up from an initial August reading of 3.3 percent released last week...

Orders for non-defense capital goods orders excluding aircraft, a proxy for business spending, rose 3.1 percent after dropping 3.9 percent in July...

The inventory-to-sales ratio...fell to 1.18 months -- the leanest level since December 2004 -- from 1.20 months in July.

And global chip sales were up in August too.

Worldwide sales of semiconductors increased sharply in August to $18.6 billion, an increase of 3.2 percent from the $18.0 billion reported in July and an increase of 1.7 percent from the $18.3 billion reported in August 2004, the Semiconductor Industry Association (SIA) reported today. SIA reported that year-to-date semiconductor sales through August, at $144.4 billion, are up by 5.8 percent over the same period of 2004 when total sales amounted to $136.5 billion.

With all this positive news, even Japanese bond yields have gone up.

Japan's 10-year bonds slumped, pushing yields to the highest in almost a year, after stocks surged and a government sale of the debt drew the weakest demand in 19 months...

The yield on the benchmark 1.4 percent bond due in September 2015 rose 6.5 basis points to 1.56 percent, the highest for 10- year bonds since November 2004, as of 6:40 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest debt broker. The price fell 0.555, or 555 yen per 100,000 yen face amount, to 98.621.

Ten-year bond futures for December delivery fell 0.75 to 136.74, the biggest daily drop for a lead contract since March 11.

Tankan and PMIs point to stronger global economy

Yesterday's news indicate that the global economy is still getting stronger.

First off, the Bank of Japan's latest quarterly Tankan survey shows that Japan's economic recovery remains on track, although not as robust as some expected.

The headline diffusion index (DI) for big manufacturers in the tankan...inched up to plus 19 in September from plus 18 in June. That was below the market's consensus forecast of plus 20, and the tankan's outlook index for December of plus 18 also marked a step back... The index for big non-manufacturers was unchanged at plus 15...

The DI for small manufacturers rose to plus 3 in September from plus 2, with the December forecast DI standing at plus 4. The index for small non-manufacturers rose to minus 11 from minus 12, with the December forecast DI at minus 12...

The tankan showed large companies plan to increase capital spending by 9.3 percent in the business year to March 2006. This was below economists' forecast for a rise of 10 percent, but a projection by small companies for a 2.3 percent decline was smaller than the market's forecast for a 3.5 percent drop.

Global purchasing managers' indices were almost universally stronger in September, with the JPMorgan/NTC Global Manufacturing PMI hitting 54.7, its highest level in a year, and up from 52.2 in August.

The US ISM index hit 59.4 in September, well up from 53.6 in August. NTC reports that the RBS/NTC Eurozone Manufacturing PMI rose from 50.4 in August to 51.7 in September, the strongest monthly improvement in seven months, the CIPS/RBS UK PMI rose from 50.1 in August to 51.5 in September, the highest level since March, and the CLSA China PMI rose from 50.6 in August to 50.9 in September. And Australian manufacturing saw a sharp turnaround as the Australian Industry (Ai) Group - PricewaterhouseCoopers Australian PMI rose to 52.9 in September after hitting a low of 43.3 in August.

What is also noteworthy is that the prices sub-indices are clearly back on the rising path. The global input prices index rose from 59.7 in August to 65.6 in September, while the ISM prices index jumped from 62.5 in August to 78.0 in September.

Consumer spending falls but manufacturing improves

Reuters reports on US consumer spending:

[S]pending fell an unexpectedly steep 0.5 percent in August, the biggest drop since November 2001, the Commerce Department in a report on Friday that also showed a surprise decline in income potentially caused by Katrina... [I]ncome in August decreased 0.1 percent as rental and proprietors' income fell. Hurricane Katrina, which slammed into the U.S. Gulf Coast on August 29, likely shaved those two measures by a combined $100 billion annualized due to uninsured property losses, it said...

The spending decline pushed up the saving rate, the percentage of disposable income saved, to negative 0.7 percent from July's record low of minus 1.1 percent.

...consumer inflation:

[E]nergy prices pushed consumer inflation up 0.5 percent, the largest jump since September 1990, the Commerce Department said. Outside volatile food and energy costs, inflation as measured by the Fed's favorite gauge edged up 0.2 percent. Over the past year, so-called core inflation has climbed 2 percent, a tick faster than in the 12 months through July.

...consumer confidence:

The University of Michigan's consumer confidence index finished September at 76.9, unchanged from the initial reading in early September.

...and manufacturing activity:

The Chicago purchasing managers index rose sharply to 60.5 in September after August's 49.2, its lowest reading since April 2003. This meant the Midwest's factory sector moved back to expansion mode after a temporary contraction in August...

The National Association of Purchasing Management-New York said its business conditions index rose for a third consecutive month to 349.7 in September, its highest level in at least eight years.

Reuters also reports on Japan's deflation:

The nationwide core consumer price index (CPI), which excludes volatile fresh food costs and is a key yardstick for monetary policy, was down just 0.1 percent in August from the same month a year earlier... But...the core CPI for the Tokyo area, compiled a month in advance of the nationwide index, fell 0.4 percent in September from a year earlier.

...industrial output:

Other data showed industrial production rose 1.2 percent in August from the preceding month. This was less than the median market forecast of a 1.8 percent increase, but manufacturers surveyed for the report forecast a 3.0 percent gain in September...

A private manufacturing survey released on Friday also pointed to growth ahead. The NTC Research/Nomura/JMMA Purchasing Managers Index rose to a seasonally adjusted 54.5, the highest reading since August 2004 and up from 53.8 last month.

...unemployment:

[T]he jobless rate fell to 4.3 percent from 4.4 in the preceding month and 4.8 percent a year earlier... The jobs-to-applicants ratio for August was 0.97...unchanged from a 13-year high hit in July.

...and retail sales:

Japanese retail sales rose 1.5 percent in August from a year earlier... Helped by an improving employment market and rising wages, sales also rose 1.5 percent from July, seasonally adjusted...

The 1.5 percent year-on-year rise would have been just 0.1 percent if it had not been for higher fuel prices, said Naomichi Miyazawa, a research and statistics official at the Ministry of Economy, Trade and Industry, which released the data.

The household spending data provide another perspective on consumer demand in Japan:

Spending by Japan's wage-earning households decreased a real 1.3 percent in August from a year earlier to 321,682 yen for the second straight month of decline, the government said Friday. The margin of the fall was smaller than the average market projection of a 1.4 percent decline, and followed a 3.3 percent drop in July...

The average monthly income of salaried workers' households came to 459,994 yen in August, down 2.4 percent in real terms from a year before, the Ministry of Internal Affairs and Communications said in a preliminary report. Disposable income shrank a real 2.1 percent to 389,573 yen, it said.

There was also plenty of economic news from Europe:

Inflation in the dozen nations sharing the euro accelerated in September to the fastest pace in more than a year after oil prices surged to a record.

Consumer prices rose 2.5 percent from a year earlier, after increasing 2.2 percent in August, Eurostat...said today. That was the biggest annual gain since May 2004... A separate report from the Brussels-based European Commission showed consumers and executives anticipate rising prices...

Retail sales in Germany...unexpectedly dropped for a third month in August. Sales, adjusted for inflation and seasonal swings, fell 0.8 percent from July, the Federal Statistics Office in Wiesbaden said today.

The unemployment rate in France...remained at 9.9 percent in September, the Labor Ministry said in Paris. A French consumer confidence index rose to minus 29 in September from a record low of minus 30 in July, according to the Paris-based national statistics office Insee...

An index of business confidence in the euro area rose to minus 7 in September, its highest since February and up from minus 8 in the previous two months, the European Commission...said today... A separate gauge of consumer confidence remained at minus 15 for the fifth successive month, in line with expectations.

Consumer confidence in the UK has been particularly weak.

Consumer confidence unexpectedly fell further in September to its lowest level in almost a year, pulled down by an increasingly pessimistic outlook for the economy, a report showed on Friday.

Consultancy GfK Martin Hamblin said its confidence barometer fell to -5 from -4 in August. That was the lowest reading since October 2004, when it was -6. Analysts had predicted the index would remain at -4.

Overall, it's a mixed picture. As the macroblog says, yesterday's data on consumer demand "ain't good news" but it's only one month's data.

But I'm rather impressed by the increases in the indices of manufacturing activity across several different surveys covering different geographical areas, pointing to a consistent picture of improvement in the sector.