NEW$ & VIEW$ (27 SEPTEMBER 2013)

U.S. GDP growth confirmed at 2.5% in Q2

The US economy grew at an annualised pace of 2.5% in the second quarter, in line with the previous estimate but defying analysts’ expectations of a pick up to 2.6%.

There was better news on final sales, which strip out inventories, which grew faster than previously thought, increasing at an annualised rate of 2.1% instead of 1.9%.

Pointing up  Worryingly, it looks like even this relatively modest growth is only being achieved by firms cutting prices. Prices charged for goods and services fell at an annualised rate of 0.1%. That was the first time these prices have fallen since the dark days of early-2009 and points to a general lack of demand growth.

The data therefore look likely to further dissuade policy makers that the economy is ready to withstand any tapering of the Fed asset purchases programme, especially as more up to date indicators such as retail sales, manufacturing output, the flash PMI and durable goods orders all suggest the economy has lost momentum again as we move towards the fourth quarter.

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Pending Sales of Existing Homes in U.S. Decreased 1.6% in August

The index of pending home sales fell 1.6 percent, after a revised 1.4 percent decrease in July that was bigger than initially reported, figures from the National Association of Realtors showed today in Washington. Economists forecast a 1 percent decline in the gauge from the month before, according to a median estimate in a Bloomberg survey.

(Haver Analytics)

Sad smile This is the fourth straight month of declining pending sales and prior months were revised down. Inventory remains low but it has increased in six of the past seven months at rates exceeding historical averages.

Confidence Gap” Widens to Record Levels

For more than a year now, we have been highlighting the growing “confidence gap” among Americans based on income.  While it is common for wealthier people to be more confident than poorer people, the discrepancy in confidence levels continues to be at record levels.  More recently, there has been growing commentary regarding this disparity’s impact on the economy in the form of weak sales from low income retailers like Wal-Mart (WMT), while retailers to the higher end and luxury markets have been holding up much better.

Goldman’s Analyst Index Plunges Most In A Year

Goldman Sachs Analyst Index (GSAI) tracks manufacturing and service sectors based on bottom-up analyst input on a firm by firm basis to generate a real-time indicator of US economic strength akin to the ISM data. After spiking to multi-year highs in August, it has collapsed by the most in a year in September as the New Orders sub-index retraced its outsized gains from August. The sales/shipments index fell, while the employment index stayed flat and below the 50 mark. The underlying composition of the GSAI weakened in September with a few sectors noting lower sales and/or a downgrade in expectations, and on balance sentiment with respect to business conditions seemed a touch weaker since August and employment remained below 50 for the sixth month.

The September GSAI joins other business surveys (stronger Philly Fed, mixed Empire State, and weaker Richmond Fed) in sending a mixed signal about recent business activities.

 
Fingers crossed  Maersk calls bottom of trade cycle

Container shipping line says demand to rise 4-6% over two years

Maersk Line said on Thursday it believed the downturn in trade had bottomed out and predicted demand for global containers would grow by 4-6 per cent in 2014 and 2015, up from recent forecasts of 2-3 per cent for this year.

Maersk is one of the best corporate indicators of global trade as it carries 15 per cent of all seaborne containers. (…)

Each of the last three quarters has seen a small increase in annual growth of container demand as trade between emerging markets has increased. But Mr Stausholm conceded: “Because of more regionalisation and nearshoring, it means there are much lower growth rates for Asia-Europe trade.”

Container shipping is not the only part of the industry to see an increase in trade looming. The Baltic Dry index (…) has climbed over 200 per cent this year as trade has gingerly picked up. (…)

Europe Tops U.S. as Global Growth Locomotive

(…) A 1 percent increase in aggregate demand in Europe’s developed nations gives 33 of 39 international economies a bigger lift in their gross value added, a proxy for gross domestic product, than if the higher demand had occurred in the U.S., Barclays strategists including London-based Jim McCormick said in a Sept. 25 report.

The impact of the European demand rise on the entire world is more than 0.25 percent, three times the U.S. effect. The explanation is that that Europe has a bigger economy with greater trade links and its banks are more exposed globally, McCormick, Barclays’ global head of asset allocation research, told reporters in London yesterday.

Europe’s positive spillovers were calculated using historical relationships between economies. The ripples extend as far as emerging Asian economies and to some in Latin America.

“While it is often believed that the U.S. cycle is a bigger source of global growth shocks, statistics suggest otherwise,” the Barclays report said.

The observation was contained in a study suggesting “the evolution of the European recovery could well be the most important factor for financial markets in the months ahead.”

Among other reasons for that analysis: The euro region’s eight-quarter recession may have hurt asset markets abroad too. Barclays noted that assets typically linked to growth have underperformed the Standard & Poor’s 500 Index by almost 20 percent since Europe’s slump began in the middle of 2011. Since the rebound started this year, growth assets have started to gain against the S&P.

Japan Prices Jump, But it Could be the Peak Market watchers who conclude from Friday’s consumer price data that Japan is speeding out of deflation could be setting themselves up for disappointment in the months ahead.

Economists say the 0.8% jump in core prices, which exclude fresh food, is likely the peak in a three-month rally that politicians have hailed as the beginning of the end to 15 years of falling prices. It was the biggest monthly jump since 2008. (…)

When energy and food are excluded from core CPI – giving “core core CPI” – prices fell for the 56th straight month in August. Economists say that getting prices of everyday expenses like rent and karaoke to rise requires stimulating demand from consumers through higher wages – an unlikely prospect with Japanese companies trying to cut costs instead.

Crying face  Obama and Republicans poles apart on US budget Stand-off over debt ceiling appears intractable

 

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