Daily Economic Briefing: February 25, 2010

________________________________________

Daily Economic Briefing: February 25, 2010

Click here for the full Research and disclosures.

Page 1 of 2: Global data summary

• Our February 12 weekly Global Data Watch highlighted the role that unseasonably bad weather in North America and Europe would play in 1Q activity. This effect will register in official activity data and surveys. Today’s US jobless claims figures are a case in point, with the majority of the weekly increase to 496,000 attributed by BLS to the severe snowstorms. In addition, there is a tendency for claims to rise in the President’s Day holiday week; the average increase over the past decade was +16,000. Thinking about the future, the forecast calls for US payroll job growth (ex-Census hiring) to climb above 100,000 per month in 2Q. Our models indicate that the level of initial joblesss claims consistent with crossing this threshold is about 440,000. This is the marker to keep in mind in coming weeks.

• Today’s report on US durable goods orders for January also was weak. Headline orders surged 3.0%m/m due to a bulge in aircraft orders. But core capital goods orders fell about 3% and so did core shipments. We were below the consensus on this report, recognizing that machinery orders tend to fall in January despite seasonal adjustment. Thus, these data do not change our opinion that US capex is recovering. The 3m annualized growth rates in core capital goods orders and shipments are 15% and 11%.

• A legitimate disappointment on capex came from the UK. The government’s survey showed that business investment fell 5.8% in 4Q09 (not annualized). Our UK team now looks for a minimal upward revision to 4Q09 GDP growth tomorrow from 0.4% to 0.8% (saar) and is likely to lower its 1Q10 growth estimate as well (2.0%).

• The EC survey of Euro area sentiment stalled in February, halting a steady rise dating back to last March. The composite PMI also stalled this month. That said, these surveys have climbed to near their long-term means, consistent with a pickup in GDP growth to near 2%, although adverse weather may prevent the economy from achieving this target in the current quarter. More encouragingly, Sweden’s business confidence indicator rose impressively in February, while New Zealand business confidence spiked to the highest level in over a decade.

• Brazil’s central bank raised banks’ RRR to 15% from 13.5%. The Bank said this is part of the unwind of its emergency liquidity provisions and should not be viewed as a tightening of monetary policy. But a tightening of monetary policy does appear overdue at this point, with this week’s reports on the labor market, retail sales and inflation underscoring the point. Our team continues to look for an initial, 50bp rate hike next month, and says the upcoming 4Q09 GDP report will help decide the outcome.

Page 2 of 2: DM business spending mixed

The UK and Australia both released business investment surveys today, reporting strikingly different 4Q outcomes. After earlier signs of stabilization, UK business investment in 4Q was reported to have fallen 5.8% (not annualized). In addition, 3Q investment was revised down to roughly three times the size of the previously reported fall. In sharp contrast to this dour UK picture, Australia’s 4Q business investment survey jumped, with the equipment, plant, and machinery component up 60%q/q saar. Today’s two business spending surveys highlight the regional differences in the current recovery.

More broadly, 4Q GDP details are steadily trickling in and we now have NIPA based capex data for a good portion of developed and EM Asia countries. On this basis, business investment continued at a very impressive pace in EM Asia through the end of last year, and capex expanded in the developed markets (DM) for first time since 1H08.

However, DM capex remains weaker than we would expect based on G-3 capital goods orders and shipments data, which imply DM capex growth of more than 10% annualized in 4Q09, compared to our estimate of 5%. This gap would be larger if it were not for the 13%q/q saar pop in US equipment and software spending last quarter The disappointment in 4Q DM business investment stems from Europe. After capex stabilized in 3Q in Western Europe, alongside the rest of the DM, the improvement in European capex stalled in 4Q.

Looking forward, capital goods orders point to solid gains in capex in months ahead. US core capital goods orders were reported today to have declined in January, but orders are rising at an annualized 19% pace on a 3m/3m basis. Combined with very robust capital goods orders in Japan (through December), our G-3 aggregate implies solid capital goods shipments, and thus capex, through the first quarter of this year.

________________________________________

Click to enlarge

Click to enlarge

Click to enlarge

Click to enlarge

Click to enlarge

Click to enlarge

ENDS

© Scoop Media