Australian Data
In a rather quiet week of local data we had a couple of key releases. The major highlight was wages data where had mixed outcomes. Over the long run however the leading indicators of employment continue to signal that there is further weakness ahead which should keep a lid on wage pressures much to the relief of the RBA.
Motor Vehicle Sales
Australian motor vehicle sales rose by the most in more than a decade in seasonally adjusted terms in July with gains across all categories as well as states. Total sales rose 8.6% with passenger vehicles up 3.7%, SUV’s up 21.1% and other vehicles up 9.2%. The sharp increase means that on an annual basis sales are now up 0.9% after being down 11.2% last month. Interestingly sales in original terms were actually sharply lower so we would expect some revision to the recent volatile outcomes owing to the supply disruptions out of Japan. Westpac Leading Index
W
estpac’s leading index edged up 0.1% in June after it declined by a similar amount the previous month. The coincident index was up 0.2% after a fall of 0.1% in May. The annualized rate of the leading index however remained unchanged at 1.6%, well below its long-term trend of 3.0% and indicating that growth, in aggregate, over the remainder of 2011 and into 2012 is likely to remain positive but on the soft side. More importantly the annual pace of the coincident index, which has a much stronger correlation with the actual GDP outcomes was 0.1%, up from -0.1%. The annual pace of the coincident index suggests that the annual pace of growth is likely to fall when the official numbers are released on September 7.
DEWR Skilled Vacancies
We have been pointing to the NAB Business survey’s employment sub-index for some time now and the weakness in the domestic economy has certainly been evident in the employment outcomes during this time. In addition to the NAB employment index, the DEWR skilled vacancies report also suggests that employment outcomes are likely to remain subdued over the coming months. Both internet and newspaper skilled vacancies continued to fall in trend terms in July and while the pace of decline in the annual rate appears to be slowing it still points to weaker employment growth ahead.
Wage Cost Index
The recent soft employment growth has actually had a dampening effect on wages according to the Wage Cost Index. The growth in private sector wages has actually been slowing progressively over the past twelve months with quarterly increases of 1.2% Q3 last year followed by 1% in Q4, 0.9% in Q1 this year and 0.8% last quarter. After rebounding following a sharp slowdown during the GFC the annual rate of growth in the wage cost index slowed in Q2 from its post GFC high in Q1, driven by the slowdown in private wages.
Average Weekly Ordinary Times Earnings
The second of the ABS earnings indicators, average weekly earnings, alternatively showed that there were wage pressures in the pipeline in the first half of this year. Total AWOTE rose by 1.2% in the quarter, up from the 1.1% in Q1 which saw the annual rate rise from 3.8% to 4.4% however the outcome was quite divergent across different sectors with wages for Admin and support services falling by 3.6% over the quarter while those in education and training saw their wages rise 2.8%. While employment is expected to remain soft over the remainder of the year the annual pace may edge higher next quarter with a 0.6% from Q3 last year to drop out of the calculation.
Offshore Data
Offshore there weren’t many positives to report with activity indicators in the US suggesting that if the economy isn’t already in a recession it soon will be while growth across the Atlantic in the Eurozone, in particular Germany, was weaker than expected in the second quarter.
US Empire Manufacturing
The latest Empire manufacturing index was much weaker that expected, falling from -3.76 to -7.72 after it was expected to rise to 0.00 with the drop indicating the pace of decline in activity accelerated. The outlook also deteriorate with the index 6 months ahead dropping to its third lowest level since the survey began back in 2001. However the most significant thing about the latest reading is that on the two previous occasions where the index was negative for two or more consecutive months the US was in a recession.
US NAHB housing market index
Sentiment amongst US homebuilders remains depressed with the National Association of Home Builders sentiment index remaining unchanged at 15 in August, barely above its record low of 8 and well below its long run average of 49. It was a similar story for the sub components of the survey with traffic of prospective buyers and present sales both up 1 point to 13 and 16 respectively however future sales fell by 2 points to 19. Until home sales improve to the point where they begin to work through the large amount of excess inventories still on the market, sentiment amongst US homebuilders is likely to remain weak.
US housing Starts and Building Permits
It is no surprise that sentiment amongst home builders remains weak when you take a look at the current level of housing starts and building permits. While both fell in July with housing starts falling 1.5% and building permits dropping 3.2% ,it is largely immaterial given the actual level of starts and permits. Both are hovering around all time lows housing starts running at an annual pace of 604k while building permits are running at an annual pace of 597k which is almost twice the level of new home sales which at their latest reading in June were running at an annual pace of 312k.
US Industrial Production
Despite the run of soft activity indices from a number of Federal Reserve jurisdictions in the US industrial production has managed to expand for the past three months with the latest increase almost 1% in July to go with a 0.4% rise in June and a 0.2% rise in May. The pace of activity is a rare positive for the US economy however as can be seen in the chart the rebound in manufacturing activity from the 2009 lows has only resulted in marginal increase in the number of people employed in the manufacturing sector as manufacturing companies continue to pursue aggressive gains in productivity to improve profitability.
US Producer Prices
US Producer prices rose twice as much as expected with a rise of 0.2% after they fell twice as much as expected the previous month with the annual pace accelerating to 7.2%. Of more concern was the rise in PPI ex-food and energy which was also twice estimate. Core PPI rose 0.4% with the annual pace edging higher to 2.5%. While the annual pace only edged higher it is expected to rise substantially over the coming months as a number of weak outcomes from last year start to drop out of the calculation.
US Consumer Prices
US consumer prices also rose more than expected in July with total prices climbing by 0.5% against expectations of a 0.2% rise with the annual rate of inflation remaining unchanged at 3.6%. While falling commodity prices will likely exert downward pressure on headline inflation, the rise of consumer prices ex-food and energy is more concerning. Core inflation rose by 0.2% with the annual rate rising to 1.8% and it appears to be gaining momentum. Roughly 40% of the core inflation index is made up of housing costs, in particular rents, and with the depressed housing market resulting in many shying away from buying, and instead renting, upward pressure on core inflation is expected to continue.
US Weekly Jobless Claims
After stoking optimism that the employment market would be able to endure the recent slowdown in economic activity with a surprise fall last week, initial jobless claims rose back up above 400k in the week ending August 13 to 408k. Continuing jobless claims were also a touch higher while those on emergency and extended benefits eased slightly. The most significant statistic however is that there are still more than 7.3 million Americans on long-term employment benefits in the US.
US Existing Home Sales
The data on the US housing market is showing little signs of improvement with existing home sales unexpectedly falling 3.5% in July to an annual pace of 4.67 million after they were expected to rise by 2.7%. With consumer confidence heading south at a rate of knots it is unlikely that we will see any improvement in the housing market anytime soon, even with interest rates trending lower.
US Philadelphia Federal Reserve Manufacturing Index
The Philadelphia Fed manufacturing index not only missed estimates like the Empire Manufacturing index earlier in the week, but completely collapsed, falling from 3.2 to -30.7, to its lowest point since the height of the contraction during the last quarter of 2008, confirming just how weak the US economy is at present. It was only in March that the index hit a near 30 year high of 43.4. The outlook is equally as bleak with the new orders index dropping from 0.1 to -26.8. The number of employees index also fell heavily from 8.9 to -5.2, its weakest result since August of last year.
German GDP
Germany’s GDP in the second quarter was only slightly better than France’s, with the economy growing by a marginal 0.1% against expectations of a 0.5% rise. The 0.1% represents a sharp slowdown from the previous quarter where growth was revised down from a gain of 1.5% to 1.3%. The annual pace of growth slipped from a revised 4.7% to 2.7%. With growth of 1.4% over the first half and momentum slowing, the Bundesbank’s forecast of 3.1% growth for 2011 may be in doubt but it more importantly it does not bode well for the Euro-zone as a whole who are heavily reliant on the strength of Germany.
Euro-zone GDP
After weaker than expected outcomes from France and Germany, growth for the Euro-zone region missed already low estimates with total growth for the second quarter coming in at 0.2% against expectations of a 0.3% rise. It is the weakest quarterly growth figure since the 17 nation area emerged from recession in late 2009. The weak outcome is yet further confirmation that economic activity across the developed world slowed over the second quarter with the annual pace of growth in the Euro-zone slowing to 1.7% from 2.5% the previous quarter.
Euro-zone CPI
While the ECB has justified their recent two 25bp increases in their benchmark overnight interest rate on inflation, the actual outcomes of late have been rather weak. Headline inflation actually fell by 0.6% in July after remaining flat for the previous 2 months with the annual rate easing from 2.8% to 2.5%. The fall in core inflation in July was even more spectacular, dropping by 1% with the annual rate slowing to 1.2%. With economic activity slowing as austerity starts to bite, the fall in inflation and an enduring slowdown in activity could see an about-face by the ECB before too long.
UK Inflation
Inflationary pressures in the UK appear to be slowly abating as the impact of earlier rises in commodity prices continue to wash through and economic activity remains subdued despite monetary policy remaining highly accommodative. The consumer price index was unchanged in July after it fell 0.1% in June however the annual pace edged higher from 4.2% to 4.4% after a 0.2% decline from July 10 dropped out of the calculation. The retail price index was the reverse, falling 0.2% in July after it was unchanged in June however despite the fall the annual pace was unchanged at 5.0% after a similar 0.2% fall from July last year dropped out of the calculation.
Yours in data – The Lighthouse Research Team.