UK second quarter GDP revised up, eurozone confidence and US home prices rise

UK second quarter GDP has been revised upward. Bloomberg reports:

The U.K. economy shrank less than previously estimated in the second quarter and mortgage approvals stayed near the highest in more than a year last month, a sign Britain is emerging from recession.

Gross domestic product fell 0.6 percent from the first quarter, compared with a prior measurement of a 0.7 percent drop, the Office for National Statistics said today in London. Banks granted 52,317 loans to buy homes in August, close to the highest level since April 2008, a separate report by the Bank of England showed.

In other signs that things are turning positive for the UK, the CBI's distributive trades survey sales balance rose to +3 in September from -16 in August and the GfK/NOP consumer confidence index rose to -16 this month from -25 in August.

Confidence is also on the rise in the euro area. Bloomberg reports:

European confidence in the economic outlook increased to the highest in 12 months in September as the economy showed signs of rebounding from the worst recession in more than six decades.

An index of executive and consumer sentiment in the 16- nation euro region rose to 82.8, the highest since September 2008, from 80.8 in August, the European Commission in Brussels said today. That was the sixth straight monthly gain. Economists had projected an increase to 82.7, a Bloomberg survey showed.

In the US, consumer confidence unexpectedly fell in September but home prices appear to be making a long-awaited recovery. Again from Bloomberg:

Home values in 20 U.S. cities climbed in July by the most in almost four years, helping stem the record plunge in household wealth that’s depressed spending.

The S&P/Case-Shiller home-price index rose 1.2 percent in July from the prior month, the biggest gain since October 2005, the group said today in New York...

The New York-based Conference Board’s consumer confidence index fell to 53.1 in September from 54.5 the prior month, the private research group said today, amid growing concern over the lack of jobs. The gauge sank to 25.3 in February, the lowest level in data going back to 1967.

Consumer prices fall in Germany and Japan

Angela Merkel will be staying on as chancellor of Germany after winning the elections over the weekend but inflation in the country is not making a quick return. Bloomberg reports the latest German inflation figures released on Monday.

German consumer prices fell at a sharper annual pace in September after energy costs declined.

Prices, calculated using a harmonized European Union method, dropped 0.4 percent from a year earlier after easing 0.1 percent in August, the Federal Statistics Office in Wiesbaden said today. From the previous month, prices also fell 0.4 percent. Economists predicted a 0.2 percent annual decline, the median of 16 forecasts in a Bloomberg News survey showed.

Falling consumer prices is more commonly associated with Japan, and that is not likely to change soon. From AFP/CNA today:

Japan saw a fourth straight month of record deflation in August as weak domestic demand hindered an economic recovery from the worst recession in decades, data showed on Tuesday...

Japan's core consumer prices dropped 2.4 per cent in August from a year earlier, the government said.

Core prices, which exclude those of volatile fresh food, fell for a sixth straight month, after a 2.2 per cent decline in July. Compared with the previous month, however, prices were flat in August...

Core consumer prices in Tokyo, a leading indicator of the nationwide trend, fell by 2.1 per cent in September from a year earlier, after a drop of 1.9 per cent in August, the government said.

Deflationary pressure is making it difficult for the Japanese government to ignore recent yen strength. From AFP/CNA:

The yen gave back some of its recent strong gains in Asian trade on Tuesday after Tokyo fired a warning shot to traders over the currency's surge.

The dollar gained to 89.93 yen in Tokyo morning trade from 89.58 in New York late Monday, when it had earlier sunk to an eight-month low of 88.25.

The greenback rebounded after Japan's Finance Minister Hirohisa Fujii said the yen's recent rise was a bit too rapid and Tokyo did not rule out stepping into the market to sell the currency "in an abnormal situation".

Fed funds rate to stay exceptionally low

The on-going stabilisation in the United States economy and financial markets has allowed the Federal Reserve to remove some of the programmes it had implemented to ease financial conditions during the crisis but it is unlikely to raise interest rates soon.

On 23 September, the Federal Open Market Committee decided at its meeting to maintain the target range for the federal funds rate at zero to 0.25 percent. In its statement released after the meeting, the FOMC noted that "economic activity has picked up" and conditions in financial markets "have improved".

Nevertheless, the FOMC also indicated that a shift from the current accommodative monetary policy stance will be gradual. It said that "economic activity is likely to remain weak for a time" and this warrants "exceptionally low levels of the federal funds rate for an extended period".

However, the purchase of securities aimed at supporting credit markets will be wound down. The FOMC said that the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009 while the purchase of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt will be executed by the end of the first quarter of 2010.

In the light of better economic reports in recent weeks, especially the Conference Board's report on 21 September that its leading economic index for the US increased 0.6 percent in August -- its fifth consecutive month of increase -- the FOMC's decision to gradually end these unconventional programmes is not unexpected.

This is especially since even without these purchases, as long as the federal funds rate stays near zero, monetary policy will probably remain accommodative. The spread between the 10-year Treasury yield and the federal funds rate is now -- and has been for much of this year -- at a level that, in prior economic downturns, had usually presaged strong recoveries.

Indeed, actions by US policymakers on the whole, both in the Federal Reserve and the federal government, appear to have been quite successful in helping the real economy avoid develeraging thus far. According to the Federal Reserve's latest flow of funds report, total domestic nonfinancial debt increased steadily every quarter over the past few quarters despite the financial crisis.

Little surprise then perhaps that deflation in consumer prices appears to have been kept at bay. The main measures of inflation monitored by the Cleveland Federal Reserve all show that prices have not fallen for the past few months.

	Percent change from previous month
	Mar	Apr	May	Jun	Jul	Aug
CPI	-0.1	-0.0	0.1	0.7	0.0	0.4
CPI less food and energy	0.2	0.3	0.1	0.2	0.1	0.1
16% trimmed-mean CPI	0.0	0.1	0.1	0.2	0.0	0.1
Median CPI	0.2	0.2	0.1	0.1	0.0	0.1
	Percent change, past 12 months
	Mar	Apr	May	Jun	Jul	Aug
CPI	-0.4	-0.7	-1.3	-1.4	-2.1	-1.5
CPI less food and energy	1.8	1.9	1.8	1.7	1.5	1.4
16% trimmed-mean CPI	2.3	2.1	1.9	1.6	1.1	1.1
Median CPI	2.7	2.6	2.4	2.1	1.8	1.8

However, while the Federal Reserve is terminating its securities purchase programmes in the face of a recovering economy and diminished deflationary pressure, it is unlikely soon to take the next logical tightening step, that is, raising the federal funds rate. The damage done to the economy during the recession thus far has been to such an extent that there is, in the words of the FOMC, "substantial resource slack". This is expected to dampen cost pressures.

Historically, during economic recoveries, the Federal Reserve does not raise interest rates until measures of resource utilisation such as industrial capacity utilisation and unemployment show clear improvement trends.

So expect the Federal Reserve to leave the federal funds rate unchanged for many more months to come.

US durable goods orders fall but recovery "far from fragile"

Continuing the recent trend, Friday's US economic data were a little on the weak side. Bloomberg reports:

Demand for U.S. durable goods unexpectedly fell in August and sales of new homes rose less than forecast, restraining the pace of the economic recovery.

Orders for goods made to last several years dropped 2.4 percent, the biggest decline since January, the Commerce Department said today in Washington...

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, dropped 0.4 percent after a 1.3 percent decrease the prior month that was more than four times as large as previously estimated...

Sales of new homes climbed 0.7 percent to a 429,000 annual pace last month, a separate Commerce Department report showed, as builders cut prices at a record pace to compete with the foreclosures that are flooding the market for previously owned houses. Sales were forecast to rise to a 440,000 pace, according to a Bloomberg survey.

At least consumer sentiment continued its improving trend.

The Reuters/University of Michigan final index of consumer sentiment increased to 73.5 in September, more than forecast, from 65.7 in August. A preliminary September reading was 70.2.

Notwithstanding the weaker dataflow recently, the ECRI is confident that the economic recovery is not fragile. From Reuters:

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to a 60-week high of 127.8 in the week to Sept. 18 from an downwardly revised 126.1 the previous week, which was originally reported as 126.2...

The index's yearly growth rate rose to a fresh record high of 24.3 percent from last week's high of 22.9 percent...

"With WLI growth climbing to a fresh record high, the economic recovery is far from fragile," [ECRI Managing Director Lakshman] Achuthan said on Friday.

Japanese exports, US existing home sales fall

Bloomberg's reports on Thursday's economic data show that the global economic recovery remains somewhat fragile.

The day started off negatively with Japan's August trade data.

Japan’s exports fell for an 11th month in August as the economic recovery struggled to gain traction.

Shipments abroad dropped 36 percent from a year earlier compared with a 36.5 percent decline in July, the Finance Ministry said today in Tokyo. From a month earlier, exports fell 0.7 percent, the second straight decrease...

Imports fell 41.3 percent in August from a year earlier, leaving a trade surplus of 185.7 billion yen ($2 billion).

Later in the day, the US reported that existing home sales unexpectedly fell in August.

Sales of existing U.S. homes unexpectedly fell last month for the first time since March, signaling the housing recovery will be slow to gain speed.

Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008...

But the employment situation continues to improve.

Figures from the Labor Department today showed that the number of Americans seeking unemployment benefits unexpectedly dropped last week to the lowest level in two months, signaling the job market is healing. Claims fell to 530,000 from 551,000 the prior week.

In Germany, business confidence did show a rise in September, though by less than expected.

German business confidence rose to a 12-month high in September, indicating Europe’s largest economy will gather strength after exiting its worst recession since World War II.

The Ifo institute in Munich said today its business climate index, based on a survey of 7,000 executives, rose to 91.3 from 90.5 in August. That’s the highest reading since September last year. Economists expected a gain to 92, the median of 40 forecasts in a Bloomberg News survey showed. The index reached a 26-year low of 82.2 in March.

Fed to slow mortgage purchases, euro area shows growth

The Fed left interest rates unchanged on Wednesday. But that was never in doubt. Bloomberg reports the real news:

The Federal Reserve will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.

“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,” the Federal Open Market Committee said in a statement today after meeting in Washington. The $1.45 trillion program was scheduled to cease by the end of this year.

Chairman Ben S. Bernanke and his fellow policy makers indicated for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep their benchmark interest-rate “exceptionally low” for an “extended period.” Today’s statement signals the Fed will maintain its stimulus measures to secure a recovery and reduce unemployment...

Officials left the target rate for overnight loans between banks at a record low of between zero and 0.25 percent. Today’s decision was unanimous.

Data from Europe on Wednesday highlights the gradually improving global economy. From Bloomberg:

Europe’s manufacturing and service industries expanded for a second month in September, suggesting the euro-region economy is gathering strength.

A composite index of both industries in the 16-nation economy rose to 50.8 from 50.4 in August, Markit Economics said today...

The euro-area services index rose to 50.6 in September from 49.9 in the previous month, today’s report showed. That was the first time in 16 months that the index has shown expansion in services. While a gauge of manufacturing remained below 50, indicating contraction, it increased to 49 from 48.2, the highest since June 2008.

Adding to signs of recovery, European industrial orders increased for a second straight month in July, the European Union’s statistics office in Luxembourg said today. Orders rose 2.6 percent from June, when they increased 4 percent.

ADB raises Asian growth forecasts

The Asian Development Bank has raised its growth forecasts for developing Asia.

Developing Asia is proving to be more resilient to the global downturn than was initially thought, the Asian Development Bank (ADB) says in a new major report.

The Update to ADB's flagship annual economic publication, Asian Development Outlook (ADO) 2009, released today, forecasts economic expansion in developing Asia to come in at 3.9% in 2009, up from the 3.4% expected in March when the ADO 2009 was released. In 2010, the growth projection is likewise upgraded to 6.4% from 6.0%. Stronger growth in East Asia and South Asia underpinned the improved prospects.

China's economy, as usual, will be leading the charge.

... In the People's Republic of China, aggressive monetary easing and the massive fiscal stimulus package rolled out by the Government bolstered the region's largest economy, which is now expected to grow by 8.2% in 2009 and 8.9% in 2010, up from the March forecast of 7% and 8% respectively...

But if you are counting on China's growth to boost commodity prices further, you might want to think again. From FT Alphaville:

You know how China has bolstered hopes for global growth, with its command-stimulus programme sucking in raw materials, supporting commodity prices and generally making the world feel better?

Well, it’s over.

At the very least, China appears to be coming off the boil as central government stockpiling and inventory-rebuilding eases...

Copper imports have come rattling back from the record levels seen earlier this year... [T]he trend is also apparent in sugar, soybeans, and wheat...

Bloomberg also has some details on the fall in metals imports by China.

But maybe the rally in commodities is not quite over yet. From Reuters:

The dollar's return to one-year lows saw copper futures rallying as much as 3 percent on Tuesday, before worries over high inventories of the base metal led the market to settle off the session's highs.

Copper for December delivery HGZ9 ended up 2 percent, or 5.90 cents, at $2.8645 a lb on the New York Mercantile Exchange's COMEX division. The intraday peak was $2.8920, up 3 percent from Monday's close.

Economic recovery looks intact, housing recovery at risk

The US economic recovery appears likely to stay intact for at least a while longer, according to the Conference Board's index of leading indicators. From Bloomberg:

The index of U.S. leading economic indicators rose for the fifth straight month, capping the longest stretch of gains since 2004 and signaling a recovery is under way.

The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.6 percent in August, in line with forecasts, after a 0.9 percent increase in July that was larger than previously estimated, according to data that the New York-based group released today...

The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in August after increasing 0.1 percent the prior month. The index tracks payrolls, incomes, sales and production.

But it's too early to signal an all-clear as the housing market may be about to weigh on the economy again. From another Bloomberg report:

The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis.

The Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.

Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans, even in the face of the record-low zero to 0.25 percent short-term rates the Fed has engineered, said economist Thomas Lawler. A weaker housing market would likely dampen the economic recovery and undercut shares of builders including Fort Worth, Texas-based D.R. Horton Inc. and Miami-based Lennar Corp., that have risen 40 percent this year, based on the Standard and Poor’s Supercomposite Homebuilding Index of 12 companies.

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.

US recovery "unstoppable"

The US economic recovery is looking strong, according to the ECRI. Reuters reports:

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 126.2 in the week to Sept. 11 from an upwardly revised 126.0 the prior week, a figure ECRI originally reported as 125.4.

It was the group's highest index reading since Aug. 29, 2008, when it was 126.3.

The index's annualized growth rate ticked up to a fresh record high of 22.9 percent from an upwardly revised high of 22.5 percent, which was originally reported as 21.3 .

Such a concerted move among all of the index's components suggest an "unstoppable" recovery ECRI Managing Director Lakshman Achuthan told Reuters.

Investors appear confident enough about the economy. From Bloomberg:

U.S. stocks rose, extending the market’s second straight weekly advance, as analyst upgrades of companies from Procter & Gamble Co. to SanDisk Corp. and Chevron Corp. overshadowed concern equities have grown too expensive...

The S&P 500 advanced 0.3 percent to 1,068.30 at 4:10 p.m. in New York. The benchmark measure for U.S. equities rallied 2.5 percent this week. The Dow average added 36.28 points, or 0.4 percent, to 9,820.2, its highest close since Oct. 6. Six stocks gained for every five that fell on the New York Stock Exchange.

The 58 percent rebound in the S&P 500 from its 12-year low on March 9 has pushed valuations in the index to about almost 20 times the reported earnings from continuing operations of its companies, the highest level since 2004, according to weekly data compiled by Bloomberg.

BoJ, SNB leave rates unchanged

The Bank of Japan left interest rates unchanged on Thursday and expressed more optimism on the economy. From AFP/CNA

The Bank of Japan left its key interest rate unchanged at 0.1 percent in a unanimous decision by the eight-member policy board, it said in a statement...

"Japan's economic conditions are showing signs of recovery," the BoJ statement said. "Public investment is increasing, and exports and production are also increasing."

"On the other hand, business fixed investment is declining mainly reflecting weak corporate profits," it added.

Private consumption "remains generally weak amid the worsening employment and income situation."

The comments were slightly more upbeat than the BoJ's statement last month that economic conditions had "stopped worsening."

Thursday's economic reports supported the BoJ's more upbeat assessment. From Bloomberg:

Japan’s manufacturers turned optimistic for the first time in almost two years and demand for services rose for a second month in July as the world’s second- largest economy emerged from its deepest postwar recession...

Sentiment among large manufacturers rose to 15.5 points this quarter, the highest reading since the survey began in 2004, a joint survey by the Cabinet Office and Finance Ministry showed today. The tertiary index, a measure of service demand, advanced 0.6 percent from June, the Trade Ministry said.

Another central bank decision on Thursday came from the Swiss National Bank, which also announced that it was leaving interest rates unchanged. Bloomberg reports:

The Swiss central bank left its key interest rate near zero and signaled it will continue to counter an appreciation of the franc to ward off deflation as the economy shows signs of recovery.

The Swiss National Bank, led by Jean-Pierre Roth, left the three-month Libor target at 0.25 percent at today’s quarterly monetary policy assessment, as predicted by all 21 economists in a Bloomberg News survey. While the SNB boosted its economic and inflation forecasts, it will also keep buying corporate bonds if necessary to ease credit conditions.

Elsewhere in Europe, there were mixed economic data.

Bloomberg reports the data from the euro area.

Exports from the 16-nation euro region rose a seasonally adjusted 4.1 percent from June, when they gained 0.9 percent, the European Union’s statistics office in Luxembourg said today. July imports contracted 0.3 percent and the trade surplus jumped to 6.8 billion euros ($10 billion), the largest since 2004, from 2.3 billion euros in June. Construction output fell 2 percent in July, a separate report showed.

In the UK, Reuters reports that retail sales were flat in August.

Retail sales stalled in August, confounding expectations of a small rise as clothing sales exerted the biggest downward impact, official data showed on Thursday...

In addition, July's previously reported monthly gain of 0.4 percent was revised down to a rise of 0.2 percent.

However, in the US, the run of positive economic data continued on Thursday. Bloomberg reports:

Housing starts in the U.S. rose to the highest level in nine months and manufacturing in the Philadelphia region expanded more than forecast, adding to evidence an economic recovery is taking hold.

Housing starts rose 1.5 percent last month to an annual rate of 598,000, the Commerce Department said today in Washington, led by construction of multifamily dwellings. The Federal Reserve Bank of Philadelphia said its general economic index jumped to 14.1 in September from 4.2 in August...

The number of Americans filing first-time claims for jobless benefits fell unexpectedly last week, a sign the labor market is deteriorating at a slower pace.

Applications dropped by 12,000 to 545,000 in the week ended Sept. 12, from a revised 557,000 the week before, Labor Department data showed today. The total number of people collecting unemployment insurance rose the prior week, to 6.23 million.

US industrial production rises in August

The US economic recovery remains on track with industrial production rising in August. Bloomberg reports:

Output at factories, mines and utilities climbed 0.8 percent last month, exceeding the median estimate of economists surveyed by Bloomberg News, data from the Federal Reserve in Washington showed...

More production was helping to soak up excess capacity. The amount of industrial volume in use increased to 69.6 percent, the highest level since February...

Factory output, which accounts for about four-fifths of industrial production, increased 0.6 percent after rising 1.4 percent the prior month. Excluding automobiles, manufacturing climbed 0.4 percent, indicating the gains were broad-based.

Even the beleaguered housing market appears to be recovering.

Another report today showed an index of homebuilder confidence climbed in September for a third consecutive month. The National Association of Home Builders/Wells Fargo’s measure climbed to 19, the highest level since May 2008, from 18 in August, the Washington-based group said. A reading below 50 means most respondents view conditions as poor.

Inflation, however, is making a gradual comeback.

... The Labor Department said the cost of living climbed 0.4 percent, and was down 1.5 percent from August 2008...

The Labor Department price report today also showed prices excluding food and energy increased 0.1 percent, matching expectations. They were up 1.4 percent from a year earlier, the smallest gain since February 2004.

US retail sales jump in August

The US economic recovery appears to be gaining momentum with the consumer coming back strongly in August. Bloomberg reports:

Sales at U.S. retailers surged in August by the most in three years, showing unexpected strength in consumer demand that extended beyond auto purchases spurred by the government’s “cash-for-clunkers” program.

The 2.7 percent increase exceeded economists’ forecasts and followed a 0.2 percent drop in July, Commerce Department figures showed today in Washington. Purchases excluding automobiles climbed 1.1 percent, topping the highest forecast...

Business inventories declined 1 percent in July, exceeding economists’ forecasts, to $1.33 trillion, the lowest level since March 2006, a Commerce Department report showed today. Sales climbed 0.1 percent after a 1.1 percent gain in June.

Manufacturing in the New York region grew in September at the fastest pace in almost two years, according to the Federal Reserve Bank of New York. The New York Fed’s general economic index increased to 18.9 from 12.1 in August, the bank said today.

However, Fed Chairman Ben Bernanke continued to sound cautious at the Brookings Institution in Washington.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” he said.

Industrial production and employment fall in Europe

Industrial production in Europe appears to be bottoming but it is taking its time in turning back up. From Eurostat yesterday:

In July 2009 compared with June 2009, seasonally adjusted industrial production fell by 0.3% in the euro area (EA16) and by 0.2% in the EU27. In June production decreased by 0.2% and 0.1% respectively.

In July 2009 compared with July 2008, industrial production declined by 15.9% in the euro area and by 14.7% in the EU27.

Industrial production, % change compared with previous month
Total industry	Feb 09	Mar 09	Apr 09	May 09	Jun 09	Jul 09
EA16	-2.4	-1.1	-1.6	0.7	-0.2	-0.3
EU27	-2.0	-1.1	-0.9	0.1	-0.1	-0.2

In another report yesterday, Eurostat reported that employment in Europe fell again in the second quarter.

The number of persons employed in the euro area (EA16) fell by 0.5% (702 000 persons) in the second quarter of 2009 compared with the previous quarter, according to national accounts estimates published by Eurostat, the Statistical Office of the European Communities. In the same period, the number of persons employed in the EU27 decreased by 0.6% (1 443 000 persons). In the first quarter of 2009, employment declined by 0.7% in the euro area and by 0.8% in the EU27. These figures are seasonally adjusted.

Clear signs of recovery, even in Japan

The world's major economies are now all showing signs of recovery.

Last week, the Organisation for Economic Co-operation and Development released its report on composite leading indicators which showed that there were stronger signs of recovery in most of the OECD economies. "Clear signals of recovery are now visible in all major seven economies, in particular in France and Italy, as well as in China, India and Russia," the report said.

Even Japan, one of the worst-hit economies in the developed world, has now moved out of recession.

Last week, the Cabinet Office reported that the Japanese economy grew 0.6 percent in the second quarter. Although this was less than the initially-reported 0.9 percent growth, it marked the first quarter of expansion in the economy after four consecutive quarterly contractions.

Japan's economic recovery is likely to continue in the third quarter. Today, the Ministry of Economy, Trade and Industry reported that industrial production in Japan increased 2.1 percent in July. This was the fifth consecutive monthly increase in industrial production and marked the highest level of output in 2009.

Meanwhile, the global economic recovery has helped Japan's exports to recover. A report from the Ministry of Finance last week showed that exports rose 1.4 percent in July, also a fifth consecutive month of increase.

Consumer spending in Japan is also recovering. Household consumption rose 0.8 percent in the second quarter and a report last week from the Cabinet Office showed that the consumer confidence index rose to 40.4 in August from 39.7 in July, an eighth straight month of increase.

Still, there have been signs too that the recovery will be difficult. The Cabinet Office also reported last week that core private sector machinery orders plunged 9.3 percent in July while its economy watchers index, a survey of economically-sensitive workers, declined to 41.7 in August from 42.4 in July.

Nevertheless, for now, it is clear that Japan's economy, like the other major economies, is showing signs of recovery.

Update on 15 September: Japanese industrial production in July revised to show 2.1 percent increase.

Asian economies recovering, bubble concerns returning

Japan's second quarter economic growth has been revised downwards. AFP/CNA reports:

Japan's economy rebounded at a weaker pace than first thought in the second quarter as companies cut investment and stockpiles amid a slow recovery from the worst recession in decades, the government said on Friday.

The world's second-largest economy grew 0.6 per cent in April-June from the previous quarter, worse than an initial estimate of 0.9 per cent, data showed. Annualised growth was revised down to 2.3 per cent from 3.7 per cent.

Still, it represents growth. Indeed, there has been no lack of growth among Asian economies lately.

India's industrial production grew 6.8 percent in July from a year ago.

And Bloomberg reports that China's expansion is strengthening.

China’s expansion strengthened in August as industrial production, lending and retail sales exceeded forecasts, reinforcing a global recovery from the deepest recession since World War II...

China’s factory output climbed 12.3 percent last month from a year earlier, the most since August 2008, the statistics bureau said yesterday. Retail sales rose 15.4 percent, the biggest gain this year after accounting for seasonal distortions. M2, the broadest measure of money supply, expanded by a record 28.53 percent...

Local-currency new loans were 410.4 billion yuan ($60 billion) in August, up from 355.9 billion yuan in July, the central bank reported. Urban fixed-asset investment accelerated, climbing 33 percent in the eight months to Aug. 31 from a year earlier...

Trade data yesterday showed shipments abroad fell a more- than-estimated 23.4 percent in August from a year earlier, the biggest drop in three months. Exports rose a seasonally adjusted 3.4 percent from July.

With the economy recovering, so are financial markets.

Shanghai’s stock index closed 2.2 percent higher yesterday, paring losses last month that were stoked by concern that a slowdown in new lending would damp growth. The index is still up 64 percent this year.

As is the Chinese real estate market.

Investment in real-estate development grew 14.7 percent in the first eight months after an 11.6 percent gain in the first seven months, the statistics bureau said on Sept. 10. House prices in 70 cities rose 2 percent in August, the fastest gain in 11 months.

But the recovery in markets has reignited bubble concerns.

The reacceleration in credit growth may deepen concern among some observers at the danger of asset-price inflation. Bank of China Ltd. Vice President Zhu Min warned on Sept. 10 that liquidity may cause “bubbles in commodities, stocks and real estate.”

And it is not just China. From Channel NewsAsia:

Market watchers have warned of a possible asset bubble in Asia's property market, due to hot money flowing into the region.

At the annual forum organised by Singapore developer CapitaLand, it was discussed that policymakers need to closely monitor leverage levels to prevent another US-style sub-prime crisis.

China's property sector is booming, growing about 35 per cent in August from about 20 per cent in July.

The Hong Kong and Singapore property markets have also rebounded strongly in recent months.

US trade deficit rises, central banks keep rates unchanged

You know that the global economy is expanding again when you see the US trade deficit rising. From Bloomberg:

The U.S. trade deficit widened in July and imports gained by a record 4.7 percent, signaling a revival of commerce as the global recession eased.

The gap between imports and exports grew 16 percent, the most in more than a decade, to $32 billion from a revised $27.5 billion in June that was larger than previously estimated, the Commerce Department said today in Washington. In another sign the U.S. slump may be ending, a Labor Department report showed jobless claims last week fell to the lowest level since July.

Despite the improvement in the global economy, most central banks remain reluctant to tighten monetary policy.

The Reserve Bank of New Zealand left interest rates unchanged on Thursday and is likely to keep interest rates low, as Bloomberg reports:

New Zealand’s central bank kept its benchmark interest rate unchanged and said further cuts remain possible amid a “patchy recovery” from the worst recession in three decades.

“We continue to expect to keep the cash rate at or below the current level for some time,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today after leaving the official cash rate at a record-low of 2.5 percent.

The Bank of England followed a similar script. From Reuters:

The Bank of England left interest rates at a record low of 0.5 percent for the sixth month running on Thursday and stuck with its programme of asset purchases to steer the economy towards recovery.

As did the Bank of Canada. From Bloomberg:

The Bank of Canada kept its key interest rate at a record low and said persistent strength in the country’s dollar is threatening to derail growth that may be faster in the second half of the year than it earlier forecast.

The target rate for overnight loans between commercial banks remained at 0.25 percent, a move predicted by all 21 economists surveyed by Bloomberg. Governor Mark Carney repeated a commitment made in April to keep that rate unchanged through June 2010 unless the inflation outlook shifts.

The most hawkish noise on Thursday came from the Bank of Korea. From Reuters:

Bank of Korea sent a strong signal on Thursday it would lift interest rates if house prices climb much more, even if it means jumping the gun on other major central banks, boosting bets on a rise as early as November...

The central bank, as expected, on Thursday kept interest rates at the 2.0 percent record low set seven months ago to protect Asia's fourth largest economy from the global downturn.

US economy show signs of improvement, German consumer prices rise in August

The Fed's beige book on Wednesday adds to evidence that the US economy is improving. From Bloomberg:

The Federal Reserve said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.

Five districts, including San Francisco, home to the biggest regional economy, “mentioned signs of improvement,” the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. The exception was the St. Louis district, which said the contraction’s pace “appeared to be moderating.”

However, as the global economy recovers, inflation is gradually making a return. Bloomberg reports German inflation data for August.

German consumer prices declined from a year earlier for a second month in August, indicating inflation pressures remained subdued even as the economy began to recover from its deepest recession in more than 60 years.

Consumer prices, calculated using a harmonized European Union method, fell 0.1 percent from a year earlier after dropping 0.7 percent in July, the Federal Statistics Office in Wiesbaden said in a statement today. The decline compares with an initial estimate that prices were unchanged on the year. From the previous month, prices rose 0.3 percent.

UK economy returns to growth

It looks like Britain has joined the list of countries emerging from recession. From Reuters:

The economy grew by 0.2 percent in the three months to August, the National Institute of Economic and Social Research said on Tuesday, warning the end of recession did not herald a return to normal economic growth...

The NIESR said the 0.2 percent rise followed a 0.3 percent fall in the three months to July and marked the first time British GDP has been higher over a three month average since May 2008.

Other recent reports mostly corroborate the picture of an improving UK economy. From Reuters:

The Office for National Statistics said factory output rose 0.9 percent in July -- three times faster than analysts had expected and the biggest rise since January 2008...

The wider measure of industrial output, which includes energy production, rose 0.5 percent on the month -- more than twice as fast as expected -- despite falls in utility, mining and oil output...

Figures overnight from the British Retail Consortium showed like-for-like retail sales values fell 0.1 percent on the year in August -- the first fall since May and following a 1.8 percent rise in July.

And more from Reuters:

The Nationwide Consumer Confidence index rose to 63 in August from an upwardly-revised 61 in July. That was the highest since May 2008 and reflected Britons' more upbeat view on current and future conditions as well as a greater willingness to spend.

A separate survey by the Recruitment and Employment Confederation and accountants KPMG showed the number of job appointments rose last month for the first time in over a year.

On inflation, figures from the British Retail Consortium showed shop prices fell 0.1 percent last month to register their first negative reading since February 2007.

In contrast to the UK, German industrial production fell in July. From Bloomberg:

German industrial output fell in July after rising in June, suggesting the recovery from recession may be gradual.

Production declined 0.9 percent from June, when it rose a revised 0.8 percent, the Economy Ministry in Berlin said today. It had initially reported a 0.1 percent decline in June output. Economists predicted an increase of 1.6 percent in July, the median of 39 forecasts in a Bloomberg survey showed. From a year earlier, production declined 17 percent when adjusted for the number of work days.

However, other recent reports on the German economy have been more upbeat.

German exports gained 2.3 in July and factory orders advanced 3.5 percent. Given the increase in orders, “industrial production is likely to increase in the third quarter,” the ministry said.

Purchasing managers say US recession has ended

At the beginning of each month, the focus of attention of most economists in the United States is the non-farm payroll report. However, for those looking to see whether the economy has turned around, last week's reports on purchasing managers' surveys may have provided the more significant data.

The non-farm payroll report from the Labor Department showed that employment continued to decline in August. Non-farm payroll employment fell by 216,000 while the unemployment rate rose to 9.7 percent from 9.4 percent in July.

Despite the continuing decline in employment, the rate of contraction has moderated. Employment had fallen by 276,000 in July and 463,000 in June.

Still, if you are looking for indications that the US economy has stopped contracting, the employment report is providing little of it.

Rather, clearer indications that the economy has turned around came last week from the Institute for Supply Manufacturing. Its survey of purchasing managers in manufacturing generated a PMI of 52.9 in August, up from 48.9 in July. This marks a return to expansion for the manufacturing sector.

Perhaps even more impressively, the new orders index jumped to 64.9 in August, the highest level since December 2004, from 55.3 in July, thus marking a second month of expansion.

The August survey of purchasing managers in the non-manufacturing sector produced a less optimistic picture. The non-manufacturing index came in at 48.4, below 50 and thus suggesting continued contraction, although it was an improvement over the July reading of 46.4.

However, some sub-indices for non-manufacturing are showing that the contraction may already be coming to an end. The business activity index jumped to 51.3 in August from 46.1 in July. The new orders index rose to 49.9 from 48.1.

The ISM purchasing managers' indices had been somewhat timely in signalling a turn in the cycle at the start of the recession. Back in December 2007, both the manufacturing PMI and new orders indices had fallen below 50 simultaneously for the first time in the cycle while both the non-manufacturing business activity and new orders indices were above 50 for the last time in the cycle. December 2007 turned out to be the peak of the cycle.

So the recent improvements in the ISM indices certainly bode well for the economy. They are probably among the indicators providing the clearest signals yet that the recession in the US has ended.

Jobs grow in Canada, fall again in the US

Canada's economy appears to be recovering. From Bloomberg:

Canada recorded a surprise job gain in August, the first in four months, suggesting the country is emerging from its first recession since 1992.

Employment rose by 27,100, Statistics Canada said. The jobless rate increased to 8.7 percent from July’s 8.6 percent, the highest since January 1998, as the labor force grew faster than employment. Economists surveyed by Bloomberg predicted a job loss of 15,000 and unemployment at 8.8 percent...

A separate report today showed business and government spending accelerated in August. The Ivey purchasing managers’ index rose to 55.7 from 51.8 in July. A reading of greater than 50 indicates purchases rose.

A recovery in the US looks more uncertain with the economy still losing jobs in August. Again from Bloomberg:

The pace of U.S. job losses slowed in August while the unemployment rate reached a 26-year high, signaling the recovery from recession will be slow to develop.

Employers cut payrolls by 216,000, fewer than forecast, after a 276,000 drop in July, Labor Department data showed today in Washington. The jobless rate rose to 9.7 percent; the so- called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 16.8 percent.

Service sectors improve, ECB sees bumpy recovery

Despite some contradictory signals of late, it looks like the UK economy remains on track to recover. From Reuters:

Activity in Britain's services sector grew at its fastest pace in nearly two years in August, boosted by a surge in firms' optimism and reinforcing hopes the economy is pulling out of recession.

The headline business activity index of the CIPS/Markit services Purchasing Managers' Index rose to 54.1 in August from 53.2 in July, the highest since September 2007 and just beating forecasts for a reading of 53.9.

Thursday's survey contrasts with a similar poll earlier this week showing manufacturing activity fell back last month, but the greater weight of the services sector in Britain suggests the economy is well-placed for recovery.

The euro area may also be recovering as a composite index of activity moved above 50 in August. Bloomberg reports:

Europe’s manufacturing and service industries unexpectedly returned to growth in August for the first time in over a year, suggesting the economy is gaining strength.

A composite index of both industries rose to 50.4 from 47 in July, higher than an initial estimate of 50 published on Aug. 21, Markit Economics said today. It also marks the gauge’s first reading above 50, indicating expansion, in 15 months. The index is based on a survey of purchasing managers.

This comes despite the individual sectoral indices remaining below 50.

The services index rose to 49.9 in August from 45.7 in the previous month, today’s report showed. That’s the highest level since May 2008. A gauge of manufacturing increased to 48.2 from 46.3 in July, the highest reading since June 2008.

However, economic recovery may be slow.

Still, a recovery may remain too fragile to encourage companies to add workers. European unemployment rose to 9.5 percent in July, the highest since 1999. Retail sales declined 1.8 percent in July from a year earlier after falling 2 percent in the previous month, the European Union’s statistics office in Luxembourg said today.

Certainly, the ECB sees a difficult recovery. Again from Bloomberg:

European Central Bank President Jean-Claude Trichet said the euro region’s recovery from recession will be “bumpy” and signaled officials are in no rush to withdraw emergency stimulus measures.

While latest data suggest “the significant contraction in economic activity has come to an end,” the recovery “is expected to be rather uneven,” Trichet said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at a record low of 1 percent. “It isn’t time to exit” policies designed to boost growth, he said...

The ECB today raised its economic forecasts for the 16- nation euro region to predict growth of about 0.2 in 2010 instead of a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago.

The ECB expects inflation to average 0.4 percent this year and 1.2 percent in 2010, up from 0.3 percent and 1 percent forecast in June. That is still below the bank’s goal of keeping annual price gains just below 2 percent.

In the US, service activity is still contracting, but at a slower pace. Bloomberg reports:

Service industries that make up most of the U.S. economy shrank at a slower pace last month, further evidence that the worst recession since the 1930s is ending.

The Institute for Supply Management’s index of non- manufacturing businesses rose to 48.4, the highest level in 11 months, from 46.4 in July, according to the Tempe, Arizona- based group. Readings below 50 signal contraction in industries that account for 90 percent of the world’s largest economy.

In a sign that the economy is nevertheless slowly recovering, initial claims for unemployment benefits fell last week albeit by less than expected.

First-time applications for jobless benefits fell by 4,000 to 570,000 in the week ended Aug. 29, exceeding the 564,000 median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed. The total number of people collecting unemployment insurance climbed.

Australian economy accelerates

Australia is looking like a good candidate for being the next to see the start of interest rate hikes after reporting its second quarter GDP on Wednesday. From Bloomberg:

Australia’s economic growth unexpectedly accelerated in the second quarter, driving the nation’s currency higher on expectations the central bank will raise borrowing costs from a half-century low.

Gross domestic product rose 0.6 percent, the biggest gain in more than a year, from the previous three months when it grew 0.4 percent, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for a 0.2 percent expansion.

The euro area is still waiting to return to growth though. Wednesday saw confirmation that the eurozone economy contracted by 0.1 percent in the second quarter.

In the US, the latest data continue to point to an upturn soon for the economy, although job growth is likely to lag. From Bloomberg:

A survey by ADP Employer Services showed businesses reduced payrolls by 298,000 after a 360,000 decline in July. The Labor Department in Washington said productivity, a measure of employee output per hour, rose at a 6.6 percent annual rate in the three months through June...

A separate report today showed factory orders advanced in July by the most in a year as companies sought to rebuild inventories after a record draw-down in the first part of 2009. The Commerce Department said orders increased 1.3 percent after a 0.9 percent gain in June.

US manufacturing joins the growth party

Based on Tuesday's economic reports, it certainly looks as though the US recession is at an end. From Bloomberg:

American manufacturing expanded for the first time in 19 months, and pending sales of existing homes rose more than forecast, indicating the worst recession since the 1930s has ended.

The Institute of Supply Management’s factory index posted its biggest two-month gain since 1983, rising to 52.9 in August; readings higher than 50 signal an expansion. The National Association of Realtors said signed purchase agreements for existing properties jumped 3.2 percent in July, for a record sixth consecutive gain...

Gains in homebuilding aren’t enough to prevent total spending on structures from dropping. The amount spent on construction projects fell 0.2 percent to a $958 billion annual pace in July, the Commerce Department reported today.

Meanwhile, Chinese manufacturing had already been growing for the past few months and the pace picked up further in August. AFP/CNA reports:

China's manufacturing activity expanded in August at its fastest pace in 16 months, two surveys released Tuesday showed, signalling the world's third largest economy is stabilising.

The Purchasing Managers Index, or PMI, published by the China Federation of Logistics and Purchasing, rose for a sixth consecutive month in August to 54.0, up from 53.3 in July.

The HSBC China Manufacturing PMI, an independent reading compiled by British research firm Markit Group Ltd. rose to 55.1 in August from 52.8 in July.

European manufacturing continued to shrink in August but at a slower pace than initially estimated. Bloomberg reports:

The European manufacturing industry’s contraction eased more than initially estimated in August, adding to evidence the region is emerging from the worst recession in six decades.

An index of euro-area manufacturing rose to 48.2 from 46.3 in July, Markit Economics said today. That was the highest in 14 months and exceeded the initial estimate of 47.9 on Aug. 21. The index is based on a survey of purchasing managers by London- based Markit and a reading below 50 indicates a contraction.

Nevertheless, the global recovery may be fragile, as it appears to be in the UK. From Reuters:

A surprise drop in manufacturing activity last month and a sharp fall in consumer lending in July cast doubt on Tuesday on the strength of any incipient economic recovery...

The headline PMI number dropped to 49.7 in August from a downwardly revised 50.2 in July, much worse than economists' expectations of a modest rise to 51.5...

Net consumer lending contracted by 635 million pounds in July compared to a 223 million pound rise in June and a 4.434 billion pound increase in July 2008, the biggest fall since records began in April 1993...

One bright spot, however, was a rise in approvals of new mortgages for house purchase to 50,123 in July from 47,891 in June -- the highest level since April 2008, and roughly in line with economists' expectations of 51,000.

Chinese stocks dive again

Monday saw another steep fall in the Chinese stock market. AFP/CNA reports:

Shanghai dived 6.74 per cent – its biggest loss in 14 months – after state media said new loans in China may fall below 300 billion yuan (43.9 billion dollars) in August, from 355.9 billion in July and 1.53 trillion yuan in June.

The problem was exacerbated by a number of upcoming initial public offerings that many fear will create a share glut.

Stocks elsewhere were affected by the fall, but to a limited extent. Bloomberg reports:

The S&P 500 lost 0.8 percent to 1,020.62 at 4:07 p.m. in New York. The Dow Jones Industrial Average retreated 47.92 points, or 0.5 percent, to 9,496.28. The MSCI World Index of 23 developed nations slid 0.8 percent. Five stocks fell for each that rose on the New York Stock Exchange, the broadest sell-off in two weeks.

Economic news on Monday were mixed.

Canada reported a worse-than-expected fall in GDP for the second quarter. From Bloomberg:

Canada’s economy shrank faster than expected in the second quarter and the country’s first recession since 1991 is proving deeper than thought, even as growth in June indicates the contraction is nearing an end.

Gross domestic product shrank at a 3.4 percent annualized rate in the April-through-June period, Statistics Canada said today in Ottawa, compared with economists’ prediction of a 3 percent annualized contraction. The first-quarter decrease, initially reported at 5.4 percent, was revised to a 6.1 percent annualized drop -- the biggest in records dating to 1961.

However, India's economy expanded rapidly in the second quarter. AFP/CNA reports:

India's economy expanded by 6.1 per cent in the three months to June, picking up pace from the previous quarter, official data showed on Monday, helped by government stimulus.

The quarterly growth was up from the 5.8 per cent posted in the January-March quarter, but analysts said a widespread drought could weaken momentum in coming months.

Meanwhile, in the US, regional surveys are pointing to an improving economy. Reuters reports:

The Institute for Supply Management-Chicago's business barometer rose to 50.0 in August, the dividing line between growth and contraction, from 43.4 in July. Wall Street economists had expected a rise to only 48.0...

A similar index covering the heavily industrialized Milwaukee region rose to 56 in August from 45 in July, while the Dallas Federal Reserve Bank said factory activity in Texas declined in August but at a slower pace than in July...

The National Association of Purchasing Management-New York index of business conditions rose to 55.3 from 48.3 in July. Improvements in purchasing volume and employment conditions signaled the worst of the city's downturn might be ending, the group said.

And in the euro area, inflation appears to be heading back into positive territory. From Bloomberg:

European consumer prices dropped less than economists forecast in August as the economy recovered from the deepest slump in six decades.

Prices in the 16-member euro region fell 0.2 percent from the year-earlier month after declining a record 0.7 percent in July, the European Union statistics office in Luxembourg said today. Economists predicted a 0.3 percent decrease, according to the median of 36 estimates in a Bloomberg News survey.