Data Vault – A weekly wrap up of key economic releases in Australia and beyond

August 27, 2011

Economic Data Vault

August 27th 2011

Welcome to our weekly Data Vault. The Vault is put together by one of our team here at Lighthouse and edited by me – we offer it as a resource to readers and clients who want to quickly get a feel for the data over the week without having to read a full blog or economic report. It will be released each Saturday morning and while our primary focus is Australia we also include our key overseas indicators.

Australian Data

It was another quiet week on the data front in Australia with the only release to note being Construction Work Done during Q2. The flow of data will pick up next week with a number of key data points scheduled for release

Construction Work Done

After an enduring run of weak domestic data, the rise in construction work completed in Q2 was a welcome surprise, even if it was short of the markets expectations. Total construction work completed rose 0.7% to $45.5bln against expectations of a 1% rise. Building work completed fell 4.9% to 19bln with residential work down 4.1% while non-residential fell 6.1% however the fall in building work completed was more than offset by another jump in engineering work which rose 5.9% to $23.4bln. The private sector continues to do the heavy lifting with work completed rising 1.3% while work completed by the public sector fell 0.7%.

Offshore Data

The offshore data was unfortunately weak once again this week, dominated by falling confidence in both the US and Europe while the latest economic activity indicators continue to disappoint.  Economic growth in the US for Q2 was also downgraded with the economy clearly running at stall speed with Q3 also expected to be weak.

US Chicago Federal Reserve National Activity Index

The Chicago Fed national activity index continued to improve for the third straight month, rising to -0.06 in July from a revised -0.38 the previous month and is well off its recent low of -0.81 after it was expected to ease from its previously reported -0.46 to -0.48. However the index, which is made up of 85 economic indicators across 5 categories, has a close directional correlation with the Fed regional manufacturing surveys and with significant falls in the Empire, Philadelphia and Richmond manufacturing indices so far in August it is likely that we will see the national activity index fall as well.

US Delinquencies and Foreclosures

US lending data was mixed in the second quarter with delinquent loans as a percentage of total loans rising for the second consecutive quarter after they had fallen the previous 3 quarters from their all time high in Q3 2010 of 10.06%. The increase through the first half of 2011 is certainly a worrying sign on the health of the US consumer but is consistent with the rise in the number of households currently on food stamps. Meanwhile in a more positive sign, foreclosures as a percentage of total loans fell for the second straight quarter to 4.43% from the high in Q4 2010 of 4.64%

ZEW Eurozone Expectations of Economic Growth

Confidence in the economic outlook across the Eurozone tumbled in August according to the Zew Center for European Economic Research business confidence survey. Expectations for growth in eurozone economy fell from -7 to -40, its lowest level since the GFC while Germany’s index fell from -15.1 to -37.6, France’s index fell from -2.8 to -34.6 while expectations for growth in Italy fell from -9.6 to -34.7. While the survey is more volatile than actual GDP outcomes, the correlation is still reasonably high with a six month lead and currently suggest that growth across the Eurozone will be -4.5% lower in Q4 2011 compared to a year earlier.

ZEW US, UK and Japan Expectations of Economic Growth

The Zew Centre’s survey also covers other developed nations with a very similar outcome . The US expectations for growth index plummeted from 11.9 to -22.9 while the drop in the UK’s index was almost as large, falling from 4.8 to -22.6. The Japanese index fell sharply from 46.9 to 19.4 however remains elevated compared to other developed nations as Japan is expected to experience stronger growth as they continue to recover from the natural disasters earlier this year.  While the correlation between the Zew Survey and US growth isn’t as strong as the Eurozone’s correlation, it still suggests weaker growth ahead.

Eurozone PMI’s

PMI’s for the Eurozone were weak but better than expected in August with the manufacturing PMI falling below 50 to 49.7 from 50.4 against expectations of a drop to 49.5 while the services PMI was down a touch from 51.6 to 51.5 after it was expected to fall to 50.9 with the composite index sitting just above 50 at 51.1. It the EU’s 2 biggest economies, the German manufacturing PMI was unchanged at 52 while France’s fell below 50 to 49.3 while Germany’s services PMI fell to 50.4 and France’s services index rose to 56.1. Despite the somewhat mixed results momentum is clearly slowing in both the manufacturing and services sectors.

US New Home Sales

Data from the US housing market remains nothing short of depressed with new homes sales remaining around their lowest level on record. Sales fell 0.7% in July while was a touch worse than what the market was expecting however the previous months 1% fall was revised down to a drop of 2.9%. In terms of the annualised rate, sales fell from a revised 300k to 298k while the 300k from the previous month was revised down from 312k. At 298k they are only 20k above their all time low going back to the start of the series in 1963 and are more than 78% below their all time high.

US Richmond Fed Manufacturing Index

The Richmond Fed manufacturing index, which differs from the Empire and Philly indices we covered last week, as it is a composite index composed of a weighted average of the shipments (33%), new orders (40%) and employment (27%) indices. However the outcome was still the same. The index fell from -1 to -10 against expectations of a fall to -5. New orders dropped from -5 to -11 while the average work week fell from 0 to -5 and the number of employees eased from 4 to 1, well down on the 14 it registered in June.

US Durable Goods Orders

Durable goods orders surprised on the upside in July, jumping by 4% which was twice what the market had been expecting. The bigger than expected jump in orders was driven by a surge in transportation related orders with total orders ex-transport rising a much softer 0.7% for the month which was still well ahead of an expected fall of 0.5%. Finally non-defense orders ex aircraft actually fell 1.5%. While all three measures have recovered well from their lows during the GFC, momentum is clearly slowing.

US FHFA House Price Index

In a rare positive for the US housing market, house prices according to the Federal Housing Finance Authorities home purchase index rose for the third straight month in June, positing a rise of 0.9%. The performance of house prices remains divergent across different regions with the Pacific region still experiencing declines after experiencing the greatest appreciation through the boom. With economic activity slowing since June we would be hesitant to call a bottom just yet, but this is obviously a positive sign for now.

US Initial Jobless Claims

After their recent dip below 400k three weeks ago, the slow down in economic activity as indicated by the Regional Federal Reserve surveys is feeding through to weakness in the employment market with initial jobless claims rising for the second straight week. Initial claims rose to 417k in the week ending August 20, up from a revised 412k the previous week and the 399k the week ending August 6. While it’s hardly a break out at this stage we certainly hope that the upward trend does not continue.

US Q2 GDP

The US economy grew less than expected in the second quarter according to the revised GDP figures with growth downgraded from the previously reported 1.3% annualised pace to 1% annualised in the second quarter. The negative revision means that the US economy has only grown bu 0.35% over the first half of the year ahead of the sharp deterioration in the recent Regional Federal Reserve Surveys of economic activity which does not bode well for growth in the current quarter. Whenever the annual pace of growth falls below 2% in the US it is followed by a recession and the latest revision took the annual pace from 1.6% to 1.5%. Stall speed indeed.

US Consumer Confidence

The final revision of the University of Michigan’s consumer confidence index saw a small upward revision from the initial read of 54.9 to 55.7 which was just short of expectations of a revision to 55.8. Even with the revision, the August read of consumer sentiment is the lowest since November 2008 when the index sank to 55.3. The latest read is also the 4th lowest since the series began back in 1978 with the other lower readings, 52.7 and the all time low of 51.7,  coming in April and May of 1980.

Yours in data – The Lighthouse Research Team.

greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

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