United Kingdom (Monday, 23rd April to Wednesday, 25th April 2007)
25/4 GDP (Q1, prov)
The ???final??? set of National Accounts figures for the fourth quarter contained one or two surprises. Headline growth was lowered slightly from 0.8% to 0.7%. However, this was offset by upward revisions to the Q2 and Q1 figures from 0.7% to 0.8%. As a result, growth for 2006 as a whole is now 0.1% higher than previously reported at 2.8%. More importantly, however, rather than accelerating, the data now show growth easing modestly during the course of the year. There were also a number of changes to the composition of growth in Q4 and during the year. Although consumer demand growth was unrevised in the latest quarter, the previous three quarters now show a weaker profile. By contrast, growth in both fixed investment spending and government consumption is now higher than before in Q4, whilst the decline in exports is smaller than previously published. As a result, the reduced headline growth estimate for the final quarter is primarily a function of sharply weaker (now negative) than initially reported stock-building, which is now estimated to have reduced GDP by 0.6% compared with 0.2% previously. Consequently, final domestic sales ??“ ordinarily our preferred measure of an economy??™s underlying strength ??“ were actually revised up from 1.1% quarter-on-quarter to 1.2%, the strongest since the first quarter of 2004. However, there are strong reasons for believing that growth in final sales will fall back markedly in Q1. Retail sales may have rebounded in February, but the quarterly growth rate has fallen. As a result, consumer spending looks set to slow sharply in Q1. At the same time, whilst the recovery in fixed investment spending looks firmly underpinned, we are unlikely to witness Q4??™s robust growth rate being repeated in the near-term. We therefore continue to expect the UK economy to grow by around 2.5% this year. What??™s more, within this growth is likely to be beneath trend through the first three quarters of the year. Financial markets expect growth of 0.6% in Q1.
United States (Monday, 23rd April to Wednesday, 25th April 2007)
24/4 Conference Board Consumer Confidence (Apr)
The larger than expected decline from 111.2 in February to 107.2 in March in the Conference Board??™s measure of consumer confidence was also greeted by disappointment by financial markets. However, once again analysts are making the mistake of focussing on the size of the monthly change rather than concentrating on the level, which in our view provides the key to understanding where personal consumption will be heading in the months ahead. In this regard, it cannot be stressed enough that even after last month??™s decline, consumer confidence is currently standing some 47-points above the level that in the past has been associated with outright declines in consumer spending. True, the below-average expectations component suggests (as we said it would last month) that overall consumer confidence is likely to move lower over the coming months, but it would have to fall precipitously to threaten the prospect of declining levels of consumer demand. Barring some form of unanticipated shock, this simply isn??™t going to happen. And given that consumer spending accounts for some 70% of US GDP, without absolute declines in consumer spending it is difficult to generate an outright decline in US economic activity. The consensus expects consumer confidence to have fallen further to 105.0 in April.
25/4 US New Home Sales (Mar)
The February data on new house sales were extremely disappointing, with the total unexpectedly falling 3.9% on the month. To make matters worse there were substantial downward revisions to the data extending back to November. As a result, not only is the three-month on three-month change now at a five-month low of -6.3%, the return to positive territory that we reported had occurred in December and January is no longer deemed to have taken place. Financial markets reacted badly to the figures, worried that the problems in the sub-prime mortgage market were beginning to impact upon the broader housing market. A modest rebound is expected in March.
25/4 Durable Goods orders (Mar)
The US durable goods orders figures for February were equally unwelcome. Having fallen sharply in January, some sort of rebound had been expected. Sure enough overall durable orders rose 2.5% on the month, but with January??™s initially reported decline of 7.8% revised to -9.3%, this left the total unchanged on year ago levels. What??™s more this figure includes a rebound in aircraft orders, which had slumped in January. Consequently, core orders (nondefence capital goods industries excluding aircraft) actually fell 1.2% after a 7.4% decline in January. As a result, the three-month on three-month annualised rate of change tumbled to -13.6% from -4.8% in December. Since the December figure coincided with an outright decline in nonresidential fixed investment spending in Q4, it could be that we will see an even larger fall in Q1. This won??™t be enough to drive the economy into recession, but business investment will act as a major constraint on growth in the first half of 2007. Financial markets envisage a rise of 2.4% in March.
Eurozone (Monday, 23rd April to Wednesday, 25th April 2007)
25/4 German IFO Business Climate Index (Apr)
Leading indicators remain consistent with continued above trend rates of growth. After successive falls in January and February, the main IFO business climate index for Germany resumed its uptrend in March. Although beneath December??™s all time high, the latest reading continues to point to a further acceleration in annual growth over the next couple of quarters. The central market expectation for April is that the index will have edged higher still from 107.7 to 107.8.