Daily Economic Briefing: March 29, 1010

Daily Economic Briefing: March 29, 1010

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• This week will be important for taking the pulse of the global economy. We sense that positive momentum is building, including a broader base of demand growth both sectorally and regionally, and a corresponding lift in employment. Key reports will be the US March labor market data, along with the March manufacturing PMIs. Additional releases to watch include the March Japanese business surveys (Shoko Chukin, Tankan) and March G-7 car sales. Next week’s services PMIs also will be important.

• In today’s reports, Japan’s retail sales surprised with a strong 0.9%m/m advance in February, following an even stronger, 2.0% gain in January. The growth of consumer spending appears to be tracking far above our 1Q forecast and its resilience, along with the recovery in the business surveys and business spending, leaves us poised to raise our 1H growth forecast (currently 1.6% saar). Key over the remainder of the week will be tomorrow’s report on household spending and the March business surveys.

• Consumption growth also looks solid in the US this quarter, with a 3%-plus gain likely. Real spending rose 0.3%m/m in February and probably posted a good gain in March, when we think car sales bounced to 12mn units. Real income growth reportedly has been poor the past few months, so the saving rate has moved down rather sharply to 3.1%. This might be taken as a source of downside risk to spending in coming months. One caution, however, is that the income data, and thus the saving rate, are subject to substantial revisions, as we have numerous times this past year. The core PCE price index was stable for a second month in a row, lowering the year-ago rate to 1.3%—the same as the core CPI. Both measures of core inflation are forecast to fall below 1%oya by midyear.

• The Euro area economic sentiment index, which is based on the national business and consumer sentiment surveys, rose a strong 1.8pts in March to just below its long-term average. Despite the gain, the survey did not deliver quite so optimistic a message as hoped. Within the business sector, the advance outside of manufacturing was less impressive than hoped. And consumer sentiment was little changed in March. All that said, we put more weight on the PMI than on these sentiment measures, and last week’s flash measure registered a decisive lift in services that we hope marks the sort of broadening in the base of demand that is becoming more apparent in Japan.

• As discussed in this week’s GDW cover essay, in a world in which monetary policymakers are very much inclined to support growth, central banks in the CEEMEA group stand out as the only ones that are still easing. Last week brought rate cuts in South Africa and Russia, along with a near ease in the Czech Republic. This action was followed by easings today in Hungary and Romania.

ENDS

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