M Global Economic Review June 2015 UNITED STATES Gross domestic product The Commerce Department revised its estimate of US real gross domestic product in the first quarter from -0.7% to -0.2% (quarter over quarter, annualized), slowing from growth of 2.2% in 2014 s final quarter. Federal Reserve policy The Federal Open Market Committee (FOMC), at its June meeting, left the fed funds rate target at 0.00%-0.25%. In its post-meeting statement, the FOMC said that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up, while the unemployment rate remained steady, with evidence that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate, and the housing sector has shown some improvement. However, business fixed investment and net exports remained soft. Inflation continued to run below the FOMC s longerterm objective, reflecting, in part, earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Further improvement in the labor market and reasonable confidence that inflation will move to the FOMC s target over the medium term remain the key criteria for a first rate hike. The Fed revised its forecasts for US GDP growth, unemployment, and inflation, as shown in the table below. Federal Reserve Central Tendency Projections (central tendency projections exclude the three highest and three lowest projections) 2015 2016 2017 Real GDP Growth March 2015 Projection June 2015 Projection 2.3% - 2.7% 1.8% - 2.0% 2.3% - 2.7% 2.4% - 2.7% 2.0% - 2.4% 2.1% - 2.5% Unemployment Rate March 2015 Projection June 2015 Projection 5.0% - 5.2% 5.2% - 5.3% 4.9% - 5.1% 4.9% - 5.1% 4.8% - 5.1% 4.9% - 5.1% PCE Inflation March 2015 Projection June 2015 Projection 0.6% - 0.8% 0.6% - 0.8% 1.7% - 1.9% 1.6% - 1.9% 1.9% - 2.0% 1.9% - 2.0% Core PCE Inflation March 2015 Projection June 2015 Projection 1.3% - 1.4% 1.3% - 1.4% 1.5% - 1.9% 1.6% - 1.9% 1.8% - 2.0% 1.9% - 2.0% Prices and productivity The headline Personal Consumption Expenditures (PCE) price index rose 0.3% in May (month over month). The core PCE price index, excluding food and energy, rose 0.1% The headline Consumer Price Index (CPI) ticked up 0.4% month over month in May; the core CPI (excluding food and energy) rose 0.1%. The Producer Price Index (PPI) rose 0.5% in May; the core PPI (excluding food and energy) increased 0.1%. Import prices in May increased 1.3% month over month. Nonfarm productivity in 2015 s first quarter was revised down from an initial reading of -1.9% to -3.1% (sequentially). Unit labor costs were revised from +5.0% to +6.7%. Housing and construction The National Association of Home Builders housing market index rose to a post-recession high of 59 in June from an upwardly revised 56 in May. Housing starts dropped 11.1% in May from an upwardly revised base. Building permits rose 11.8%.
The S&P/Case-Shiller 20-City Index of existing home prices in April rose 0.3% month over month and 4.9% year over year. According to the Federal Housing Finance Agency s house price index, US home prices in April increased 0.3% month over month and 5.3% year over year. New home sales in May climbed 2.2% from an upwardly revised base. Existing home sales rose 5.1%. Pending home sales rose 0.9% (from a downwardly revised base) to their highest level in nine years. Construction spending increased 2.2% in April from an upwardly revised base. Consumer Consumer spending in May rose 0.9% from an upwardly revised base. Personal income rose 0.5%, also from an upwardly revised base. Retail sales rose 1.2% in May from an upwardly revised base. Core/control retail sales (which the Commerce Department uses to estimate consumer spending in the GDP report) increased 0.7%. The Conference Board s Consumer Confidence Index rose to 101.4 in June from a downwardly revised 94.6 in May. Business The Institute for Supply Management (ISM) manufacturing index advanced to 52.8 in May from an upwardly revised 51.8 in April. Industrial production declined 0.2% in May from a downwardly revised base. Capacity utilization ticked down to 78.1% from a revised 78.3%. Durable goods orders fell 1.8% month over month in May from a downwardly revised base. Core capital goods orders (nondefense capital goods excluding aircraft) a key indicator for future business equipment spending rose 0.4%. The ISM nonmanufacturing index declined to 55.7 in May from a downwardly revised 57.2 in April. Wholesale inventories in April increased 0.4%. Business inventories rose 0.4% as well. The Conference Board s index of leading indicators rose 0.7% in May. The National Federation of Independent Business s small business optimism index climbed to 98.3 in May from an upwardly revised 97.2 in April. Employment Nonfarm payrolls increased by 280,000 in May from a downwardly revised base. The unemployment rate ticked up to 5.5% from 5.4% on higher participation. Average hourly earnings increased 0.3% month over month. Trade/currency/commodities The nominal US trade deficit narrowed to $40.9 billion in April from a revised $50.6 billion in March, as exports rose 1.0% and imports fell 3.3%. The value of the US dollar depreciated against the euro (to $1 = 0.90 at the end of June from $1 = 0.92 at the end of May) and against the yen (to $1 = 122.5 at the end of June from $1 = 124.1 at the end of May). The price of West Texas Intermediate crude oil declined to $59.01 per barrel at the end of June from $60.30 per barrel at the end of May. 2 EUROPE/AFRICA Gross domestic product Euro area The euro area s GDP in 2015 s first quarter expanded 0.4% quarter over quarter and 1.0% year over year.
GDP growth in the UK in the first quarter of 2015 was revised up to 0.4% from the previous estimate of +0.3% (quarter over quarter), still a deceleration from +0.6% in the final quarter of 2014. Elections/political developments Greece Greece failed to make a 1.6 billion debt payment due on June 30 to the International Monetary Fund (IMF), deepening concerns that the country could leave the eurozone. With hours to go before the deadline for the payment, Greece s Prime Minister Alexis Tsipras asked other euro nations to provide another bailout, which would buy time for Athens to renegotiate its crippling debt load. Finance ministers of the eurozone countries discussed the proposal and left open the possibility that Greece could eventually get a new aid package but took no immediate action. Earlier in the week, Tsipras had called for a referendum to be held on July 5 that would allow Greek citizens to decide whether to accept or reject the terms of a bailout deal proposed earlier by the country s creditors. Tsipras said he was calling the referendum because Greece s creditors the IMF, the European Central Bank, and the eurozone countries had refused to negotiate in good faith and present a fair compromise. The snap plebiscite was announced five months after Tsipras was swept into office on a wave of discontent about budget cuts that deepened a six-year recession. Some members of his Syriza party advocate defaulting rather than backing down from their anti-austerity policies, and Greek ministers urged the country of 11 million people to vote no. Central bank/fiscal policy Euro area The European Central Bank s (ECB) left its benchmark interest rate unchanged at 0.05%. Russia The Central Bank of Russia cut its key rate 100 basis points to 11.5%. The Bank of England s Monetary Policy Committee made no change to its existing asset purchase program ( 375 billion) or official interest rate (0.5%). Prices and productivity Germany Harmonized inflation in Germany increased 0.1% year over year in May, decelerating from +0.7% in May. Russia Headline inflation in Russia rose 15.8% year over year in May, decelerating from 16.4% in April. South Africa Headline inflation in South Africa increased 4.6% year over year in May, up from 4.5% in April. Consumer The UK s headline CPI rose 0.1% year over year in May. Core CPI (excluding energy, food, alcohol, and tobacco) was up 0.9%. France Consumer confidence in France in June held steady at 94. Italy Consumer confidence in Italy in June advanced to 109.5 from 106.0 in May. 3
Russia Retail sales in Russia in May dropped 9.2% year over year. Business Retail sales (excluding auto fuel) in the UK in May increased 0.2% month over month and 4.4% year over year. Euro area The euro area s composite Purchasing Managers Index (PMI) declined to 53.6 in May from 53.9 in April. The manufacturing PMI rose to 52.2 from 52.0, while the services PMI eased to 53.8 from 54.1. Industrial production in April increased 0.1% month over month (from a downwardly revised base) and 0.8% year over year. France Industrial production in France in April fell 0.9% month over month and 0.1% year over year. Germany Industrial production in Germany in April rose 0.9% month over month. Manufacturing orders in April rose 1.4% month over month. The ifo business climate index declined to 107.4 in June from 108.5 in May. Italy Industrial production in Italy in April declined 0.3% month over month but ticked up 0.1% year over year. Business confidence in June advanced to 104.3 from 101.8 in May. Russia Russia s industrial production in May contracted 5.5% year over year. The UK s composite PMI fell to 55.8 in May from 58.4 in April. The manufacturing PMI climbed to 52.0 from a revised 51.8, while the services PMI dropped to 56.5 from 59.5. Industrial production in April improved 0.4% month over month and 1.2% year over year. Employment Germany Germany s unemployment rate remained 6.4% in May. Russia Russia s unemployment rate declined to 5.6% in May from 5.8% in April. Real average wages fell 7.3% year over year. The UK s unemployment rate held steady at 5.5% in the three-month period ended in April. Average earnings rose 2.7% year over year. 4
ASIA/PACIFIC Gross domestic product s GDP in 2015 s first quarter grew 0.9% quarter over quarter and 2.3% year over year. s GDP in 2015 s first quarter was revised up to +3.9% from an initial reading of +2.4% (quarter over quarter, annualized), accelerating from +1.1% in fourth-quarter 2014. Central bank/fiscal policy China The People s Bank of China (PBOC) lowered its benchmark lending rate to a record low and lowered reserverequirement ratios for some lenders, accelerating monetary easing. In the fourth reduction since November, the one-year lending rate was reduced 25 basis points to 4.85%, effective June 28. The one-year deposit rate dropped 25 basis points to 2.00%, while reserve ratios for some lenders, including city commercial and rural commercial banks was lowered by 50 basis points. The PBOC also began permitting banks to issue large-denomination negotiable certificates of deposits (NCDs) to nonfinancial corporations and households at market interest rates. India The Reserve Bank of India cut its repo rate 25 basis points to 7.25%. Indonesia Bank Indonesia left its benchmark policy rate unchanged at 7.50%. The Bank of (BOJ) kept its monetary policy unchanged. 5 South Korea The Bank of Korea cut its policy rate by 25 basis points to 1.5%. Prices and productivity China China s CPI in May rose 1.9% month over month (annualized, seasonally adjusted) and 1.2% year over year. The PPI fell 0.9% sequentially and 4.6% year over year. India India s headline CPI accelerated to 5.0% year over year in May from 4.9% in April. Core CPI (excluding food and fuel) rose to 4.6% from 4.2%. Indonesia Indonesia s headline CPI climbed to 7.1% in May from 6.8% in April (year over year). Core CPI (excluding food and fuel) held steady at 5.0% year over year. South Korea Consumer South Korea s headline CPI accelerated to 0.5% in May from 0.4% in April (year over year). Core CPI (excluding food and fuel) rose to 2.1% from 2.0% (year over year). Nominal retail sales in were flat in April. Sales excluding food were likewise flat.
Consumer sentiment fell 6.9% month over month to 95.3 in June. Business s cash wages rose 0.6% year over year in May, decelerating from a revised +0.7% in April. Basic wages rose 0.3%, decelerating from +0.4%. Retail sales in May rose 1.7% month over month. Household spending in May climbed 2.4% month over month and 4.8% year over year. The National Bank business confidence survey rose to +7 in May from +3 in April. Business conditions improved to +7 from +4. China China s official PMI inched up to 50.2 in May from 50.1 in April. Industrial production In May increased 8.6% month over month (seasonally adjusted, annualized) and 6.1% year over year (up from +5.9% year over year in April). India India s industrial production in April rose 2.5% month over month (seasonally adjusted) and 4.1% year over year. Industrial production in in May fell 2.2% month over month. Machinery orders increased 3.8% in April. The Reuters Tankan manufacturers diffusion index rose to +14 in June from +13 in May. The nonmanufacturers diffusion index advanced to +36 from +33. South Korea South Korea s industrial production fell 1.3% (month over month, seasonally adjusted) in May. Employment Trade s unemployment rate declined to 6.0% in May from a revised 6.1% in April. s unemployment rate held steady at 3.3% in May. 's trade deficit deteriorated to a record A$3.89 billion in May from a revised -A$1.23 billion in March. Month over month, imports rose 3.9% while exports fell 5.7% (seasonally adjusted). China China s trade surplus expanded to US$59.5 billion in May from US$34.1 billion in April. Year over year, exports fell 2.5% while imports declined 17.6%. India India s trade deficit narrowed to US$10.4 billion in May from US$11.0 billion in April (non-seasonally adjusted). Year over year, exports fell 20.2% while imports declined 16.2%. 6
Indonesia Indonesia s trade surplus expanded to US$1.0 billion in May from US$0.5 billion in April (not seasonally adjusted). Year over year, exports fell 15.2% while imports declined 21.4%. s trade balance moved to a 216.0 billion deficit in May from a revised 55.8 billion deficit in April. Export volume dipped 3.8% year over year, while import volume fell 5.3%. South Korea South Korea s trade surplus contracted to US$6.3 billion in May from a record-high US$8.5 billion in April. Year over year, exports declined 10.9%, while imports fell 15.3%. THE AMERICAS Gross domestic product Argentina Argentina s GDP in 2015 s first quarter expanded 1.1% year over year and 0.2% quarter over quarter (seasonally adjusted, decelerating from +0.3% sequentially in fourth-quarter 2014). s GDP in April contracted 0.8% month over month and 3.1% year over year. s GDP in April was flat month over month but up 1.7% year over year. s GDP in April advanced 0.7% month over month (seasonally adjusted) and 2.1% year over year. Central bank/fiscal policy s central bank raised the Selic policy rate another 50 basis points, to 13.75%. The Central Bank of left its policy rate unchanged at 3.00% Prices and productivity Argentina Argentina s headline CPI in May rose 1.0% month over month and 15.3% year over year. s headline inflation, as measured by the Índice Nacional de Preços ao Consumidor Amplo (IPCA), in May was 0.7% month over month and 8.5% year over year. Core inflation was 0.7% month over month, 7.7% year over year. s headline CPI increased 0.2% month over month in May; core CPI rose 0.1%. Headline inflation in in May declined 0.5% month over month but rose 2.9% year over year. Core inflation was up 0.1% month over month and 2.3% year over year. 7
Consumer Broad retail sales in in April declined 0.3% month over month (seasonally adjusted) from a downwardly revised base. Core/control retail sales (excluding autos and building materials) fell 0.4%, also from a downwardly revised base. Consumer confidence dropped 1.4% month over month (seasonally adjusted) in June. Retail sales in rose 3.1% year over year in May. Business Retail sales in in April contracted 0.3% month over month (seasonally adjusted) but expanded 4.6% year over year. Argentina Industrial production in Argentina in May increased 0.2% month over month (seasonally adjusted) but fell 0.9% year over year. s composite PMI fell from 44.2 in April to 42.9 in May, its lowest level since March 2009. The manufacturing PMI contracted to 45.9 from 46.0, while the services PMI dropped to 42.5 from 44.6. Industrial production in April declined 1.2% month over month (seasonally adjusted) and 7.6% year over year. s industrial production in May contracted 1.2% year over year. s industrial production in April contracted 0.1% month over month (seasonally adjusted) but rose 1.1% year over year. Employment Trade s seasonally adjusted unemployment rate rose to 6.4% in May from 6.1% in April. Average real wages declined 5.0% year over year. s unemployment rate jumped to 6.6% in the three months ended in May from 6.1% in the three months ended in April. s unemployment rate rose to 4.5% in May from 4.3% in April. On a seasonally adjusted basis, unemployment held steady at 4.4%. Argentina Argentina s monthly trade surplus declined to US$355 million in May from US$1.29 billion a year earlier. Exports fell 26% and imports contracted 16% (year over year). s trade surplus expanded to US$2.8 billion in May 2015 from US$711 million in May 2014. Year over year, daily average exports declined 15.2% while imports fell 26.6% 8
s trade surplus contracted to US$1.0 billion in May 2015 from US$1.5 billion in May 2014, as exports fell 22% and imports dropped 19% (year over year). 9 Sources: FactSet, Goldman Sachs, Bloomberg, MarketWatch, The New York Times, The Washington Post, The Wall Street Journal, Reuters, McClatchy, US Department of Commerce, US Treasury Department, Federal Reserve, US Labor Department, US Bureau of Labor Statistics, Institute for Supply Management, National Association of Home Builders/Wells Fargo, Case-Shiller, Standard & Poor s, The Conference Board, National Bureau of Economic Research, Energy Information Administration. The comments, opinions, and estimates contained herein are based on or derived from publicly available information. Investors cannot invest directly in an index. All data included in this economic review were released in June 2015. Information in this review was obtained from sources Jennison believes to be reliable as of the date presented; however, Jennison cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Jennison has no obligation to update any or all such information nor does it make any express or implied warranties or representations as to the completeness or accuracy. This economic review does not purport to provide any legal, tax, or accounting advice. This material is for informational purposes only, does not constitute investment advice, and should not be used as the basis for any investment decision. Further distribution is prohibited without Jennison s consent.