M Global Economic Review August 2015 UNITED STATES Gross domestic product US real gross domestic product in the second quarter expanded 3.7% (quarter over quarter, annualized), up from the advance estimate of +2.3% and the first quarter s +0.6%. Federal Reserve policy Minutes of the Federal Open Market Committee (FOMC) July meeting, released on August 19, said that most members believed that the conditions for policy firming had not yet been achieved, but that conditions were approaching that point. Almost all members needed more evidence before they would be reasonably confident that inflation would return to the 2% longer-run objective, a precondition for a first hike in the fed funds rate. In addition, the ongoing rise in labor demand still appeared not to have led to a broad-based firming of wage increases. Problems in Greece diminished somewhat, and concern about developments in appeared limited. However, several participants noted that a material slowdown in could cause problems for the US. Prices and productivity The headline Personal Consumption Expenditures (PCE) price index rose 0.1% in July (month over month). The core PCE price index, excluding food and energy, increased 0.1%, as well. The headline Consumer Price Index (CPI) ticked up 0.1% month over month in July; the core CPI (excluding food and energy) also rose 0.1%. The Producer Price Index (PPI) increased 0.2% in July; the core PPI (excluding food and energy) climbed 0.3%. Import prices in July declined 0.9% month over month. Housing and construction The National Association of Home Builders housing market index hit a post-recession high of 61 in August, up from 60 in July. Housing starts rose 0.2% in July from an upwardly revised base. Building permits declined 16.3%. The S&P/Case-Shiller 20-City Index of existing home prices in June declined 0.1% month over month but increased 5.0% year over year. According to the Federal Housing Finance Agency s house price index, US home prices in June rose 0.2% month over month and 5.6% year over year. New home sales in July climbed 5.4%. Existing home sales increased 2.0%. Pending home sales rose 0.5% (from an upwardly revised base). Construction spending increased 0.1% in June from an upwardly revised base. Consumer Consumer spending in July rose 0.3%. Personal income expanded 0.4%. Retail sales advanced 0.6% in July from an upwardly revised base. Core/control retail sales (which the Commerce Department uses to estimate consumer spending in the GDP report) rose 0.3%. The Conference Board s Consumer Confidence Index surged to 101.5 in August from an upwardly revised 91.0 in July. Business The Institute for Supply Management (ISM) manufacturing index fell to 52.7 in July from 53.5 in June. Industrial production rose 0.6% in July from a downwardly revised base. Capacity utilization ticked up to 78.0% from a downwardly revised 77.7%. Durable goods orders climbed 2.0% month over month in July. Core capital goods orders (nondefense capital goods excluding aircraft) a key indicator for future business equipment spending rose 2.2%.
The ISM nonmanufacturing index climbed to 60.3 in July from 56.0 in June. Wholesale inventories in June increased 0.9%. Business inventories rose 0.8%. The Conference Board s index of leading indicators dipped 0.2% in July. The National Federation of Independent Business s small business optimism index rose to 95.4 in July from 94.1 in June. Employment Nonfarm payrolls increased by 215,000 in July from an upwardly revised base. The unemployment rate held steady at 5.3%. Average hourly earnings increased 0.2% month over month. Trade/currency/commodities The nominal US trade deficit widened to $43.8 billion in June from a revised $40.9 billion in May, as exports declined 0.1% and imports rose 1.2%. The value of the US dollar depreciated against the euro (to $1 = 0.89 at the end of August from $1 = 0.91 at the end of July) and against the yen (to $1 = 121.2 at the end of August from $1 = 123.9 at the end of July). The price of West Texas Intermediate crude oil rose to $49.10 per barrel at the end of August from $47.12 per barrel at the end of July. EUROPE/AFRICA Gross domestic product Euro area The euro area s GDP in the second quarter expanded 0.3% quarter over quarter and 1.2% year over year. France France s GDP in the second quarter was flat quarter over quarter and up 1.0% year over year. Germany Germany s GDP increased 0.4% quarter over quarter and 1.6% year over year in the second quarter. Italy Italy s GDP in the second quarter rose 0.2% quarter over quarter and 0.5% year over year. Spain Spain s GDP in the second quarter grew 1.0% quarter over quarter. Central bank/fiscal policy United Kingdom 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 Russia Headline inflation in Russia rose 15.6% year over year in July, accelerating from 15.3% in June. United Kingdom The UK s headline CPI increased 0.1% year over year in July. Core CPI (excluding energy, food, alcohol, and tobacco) was up 1.2%. 2
Consumer Russia Business Retail sales in Russia in July dropped 9.2% year over year. Euro area The euro area s composite Purchasing Managers Index (PMI) dropped to 53.9 in July from 54.2 in June. The manufacturing PMI ticked down to 52.4 from 52.5, while the services PMI fell to 54.0 from 54.4. Industrial production in June fell 0.4% month over month (from an upwardly revised base) but rose 1.2% year over year. France Industrial production in France in June dipped 0.1% month over month but rose 0.6% year over year. Business confidence improved to 100 in August from a downwardly revised 99 in July. Germany Industrial production in Germany in June declined 1.4% month over month but increased 0.6% year over year. The ifo business climate index ticked up to 108.3 in August from 108.0 in July. Russia Russia s industrial production in July contracted 4.8% year over year. United Kingdom The UK s composite PMI dipped to 56.6 in July from 57.4 in June. The manufacturing PMI rose to 51.9 from 51.4, while the services PMI fell to 57.4 from 58.5. Industrial production in June dipped 0.4% month over month but rose 1.5% year over year. Employment Russia Russia s unemployment rate declined to 5.5% in July from 5.7% in June (seasonally adjusted). Real average wages fell 9.2% year over year. United Kingdom The UK s unemployment rate held steady at 5.6% in the three-month period ended in June. Average earnings rose 2.4% year over year. 3 ASIA/PACIFIC Gross domestic product s GDP expanded 7.0% year over year in the second quarter (down from +7.5% in the first quarter). Indonesia Indonesia s year-over-year GDP growth held steady at +4.7% in second-quarter 2015. Quarter over quarter, GDP rose 4.2%, accelerating from 3.8% in the first quarter. s GDP in the second quarter contracted 1.6% quarter over quarter (annualized), decelerating from an upwardly revised 4.5% expansion in the first quarter.
Thailand Thailand's GDP expanded +2.8% year over year in the second quarter, decelerating from +3.0% year over year in the first quarter. Central bank/fiscal policy The Reserve Bank of left its cash rate at 2.0%. In an unexpected move, the People s Bank of (PBOC) lowered its currency exchange rate, effectively devaluing the yuan by 3% in the week of August 11 (the yuan subsequently rebounded modestly, ending the month of August down 2.6%). said the devaluation was part of an effort to give market forces a bigger say in the exchange rate, but many observers interpreted the move as an indication that the Chinese economy is decelerating faster than generally believed. Investors also worried that a weaker yuan would hurt exporters in other countries and potentially prompt other nations to devalue their own currencies to help their exporters compete with. The action resulted in worldwide market volatility; the Shanghai Composite Index dropped 12.5% in August. On August 26, the PBOC lowered its benchmark lending and deposit interest rates by 25 basis points and announced a 50-basis-point reduction in the reserve requirement ratio for all financial institutions, effective September 6. The Reserve Bank of left its repo rate at 7.25%. Indonesia Bank Indonesia left its benchmark policy rate unchanged at 7.50%. The Bank of (BOJ) kept its monetary policy unchanged. 4 South Korea The Bank of Korea kept its policy rate at 1.5%. Thailand The Bank of Thailand left its policy rate unchanged at 1.5%. Prices and productivity s CPI in July rose 3.3% month over month (annualized, seasonally adjusted) and 1.6% year over year. The PPI fell 6.4% sequentially and 5.4% year over year. s headline CPI decelerated to 3.8% year over year in July from 5.4% in June. Core CPI (excluding food and fuel) also dropped, to 4.4% year over year from 4.9%. Indonesia Indonesia s headline CPI held steady at 7.3% in July (year over year). Core CPI (excluding food and fuel) ticked down to 4.9% from 5.0% in June (year over year). s core CPI was flat year over year in July, decelerating from +0.1% in June.
South Korea Consumer South Korea s headline CPI held steady at 0.7% in July (year over year). Core CPI (excluding food and fuel) was unchanged at 2.0% (year over year). Nominal retail sales in advanced 0.7% in June. Consumer sentiment rose 7.8% month over month to 99.5 in August. Real retail sales in in July increased 9.5% month over month (seasonally adjusted, annualized) and 10.3% year over year (down from +10.6% year over year in June). Business s cash wages declined 2.4% year over year in June, decelerating from +0.7% in May. Basic wages rose 0.4%, accelerating from +0.2%. Retail sales in July improved 1.2% month over month. Household spending in July increased 0.6% month over month but fell 0.2% year over year. Consumer confidence deteriorated to 40.3 in July from 41.7 in June. The National Bank business confidence survey fell to +4 in July from a revised +8 in June. Business conditions declined to +6 from +10. Industrial production in July increased 3.3% month over month (seasonally adjusted, annualized) and 6.0% year over year (down from +6.8% year over year in June). s industrial production in June rose 0.2% month over month (seasonally adjusted) and 3.8% year over year. Industrial production in in July declined 0.6% month over month. Machinery orders dropped 7.9% in June. The Reuters Tankan manufacturers diffusion index rose to +17 in August from +14 in July. The nonmanufacturers diffusion index improved to +27 from +24. South Korea South Korea s industrial production dipped 0.5% (month over month, seasonally adjusted) in July. Employment s unemployment rate increased to 6.3% in July from 6.1% in June. s unemployment rate ticked down to 3.3% in July from 3.4% in June. 5
Trade s trade deficit expanded to A$2.9 billion in June from a revised -A$2.7 billion in May. Month over month, imports climbed 4.0% while exports rose 3.0% (seasonally adjusted). s trade surplus narrowed to US$43.0 billion in July from US$46.5 billion in June. Year over year, exports fell 8.3% while imports declined 8.1%. s trade deficit expanded to US$12.8 billion in July from US$10.8 billion in June (not seasonally adjusted). Year over year, exports and imports both declined 10.3%. Indonesia Indonesia s trade surplus widened to US$1.3 billion in July from US$0.5 billion in June (not seasonally adjusted). Year over year, exports fell 19.2% while imports declined 28.4%. s trade deficit expanded to - 268.1 billion in July from a revised 70.5 billion in June. Year over year, export volume dipped 0.7% while import volume fell 2.9%. South Korea South Korea s trade surplus contracted to US$7.8 billion in July from US$10.0 billion in June. Year over year, exports declined 3.3%, while imports fell 15.3%. THE AMERICAS 6 Gross domestic product s real GDP in the second quarter contracted 1.9% quarter over quarter (seasonally adjusted) and 2.6% year over year. s GDP in June grew 1.1% month over month (seasonally adjusted) and 2.7% year over year. Central bank/fiscal policy s central bank left its reference rate unchanged at 3.00% for the tenth consecutive month. Prices and productivity Argentina Argentina s headline CPI in July rose 1.3% month over month and 14.8% year over year. s headline inflation, as measured by the Índice Nacional de Preços ao Consumidor Amplo (IPCA), in July was 0.6% month over month and 9.6% year over year. Core inflation was 0.7% month over month, 8.3% year over year. s headline CPI increased 0.4% month over month in July; core CPI rose 0.3%.
Mexico Consumer Headline inflation in Mexico in July rose 0.2% month over month and 2.7% year over year. Core inflation was up 0.2% month over month and 2.3% year over year. Broad retail sales in in June declined 0.8% month over month (seasonally adjusted). Core/control retail sales (excluding autos and building materials) fell 0.4%. Consumer confidence in August dropped 1.3% month over month (seasonally adjusted) and 21.6% year over year. Retail sales in rose 2.9% year over year in July. Mexico Business Retail sales in Mexico in June increased 1.1% month over month (seasonally adjusted) and 5.4% year over year. Consumer confidence declined 1.9% month over month (seasonally adjusted) in July. Argentina Industrial production in Argentina in July increased 0.3% month over month (seasonally adjusted) and 0.7% year over year. Industrial production in June contracted 0.3% month over month (seasonally adjusted) and 3.2% year over year. Business confidence in the industrial sector in August declined 2.6% month over month (seasonally adjusted) and 18.6% year over year. s industrial production in July declined 1.7% year over year. Employment Trade s seasonally adjusted unemployment rate rose to 7.3% in July from 6.7% in June. Average real wages declined 2.4% year over year. s unemployment rate increased to 6.6% in the three months ended in July from 6.5% in the three months ended in June. Mexico Mexico s unemployment rate declined to 4.7% in July 2015 from 5.5% in July 2014. On a seasonally adjusted basis, unemployment dropped to 4.3% from 5.0% a year earlier. Argentina Argentina s monthly trade surplus declined to US$204 million in July from US$815 million a year earlier. Exports fell 12% and imports contracted 4% (year over year). 7
s trade surplus fell to US$11 million in July 2015 from US$390 million in July 2014, as exports fell 17% and imports dropped 12% (year over year). Mexico Mexico s trade deficit widened to US$2.3 billion in July 2015 from US$1.0 billion in July 2014, driven by deterioration in the oil trade balance (to a US$1.0 billion deficit from a US$0.2 billion surplus a year ago). 8 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 August 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.