Research
March Economic 13, 2009
US Weekly Prospects
Data Watch: A sign of spring Focus: Consumer spending stabilizes Research Note: Reserves, exit strategies, and expansion strategies Research Note: Flow of funds slows to a trickle Global Data Watch: The song does not remain the same Economic Indicators US Forecast Calendar
2 4 5 7 9 12 20 21
Retail sales
%ch saar, over 3 months 20 10 0 -10 -20 -30 -40 2007 Total retail sales 2008 2009 Core sales: ex autos, gasoline, and building materials
Bruce Kasman
(1-212) 834-5515 [e-mail]
Robert Mellman
(1-212) 834-5517 [e-mail]
Michael Feroli
(1-212) 834-5523 [e-mail]
Abiel Reinhart
(1-212) 834-5614 [e-mail]
www.morganmarkets.com
JPMorgan Chase Bank, New York Robert Mellman (1-212) 834-5517 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Data Watch: A sign of spring
February retail sales report indicates that real consumer spending is posting a modest gain in 1Q09 Jobless claims to date point to another painful labor market report for March March business surveys will provide guidance as to whether the manufacturing downturn is moderating The February retail sales report shows a partial rebound in core retail sales since the beginning of the year and points to a modest increase in real consumer spending in the first quarter. Consequently, the forecast for 1Q09 real consumer spending has been raised to 0.5% saar (from -1.0%) and the forecast for real GDP growth has been raised marginally to -5.0% saar (from -5.5%). While many influences on consumer spending remain negative, support for consumer spending will arrive soon in the form of tax cuts that are part of the fiscal stimulus package and financing for autos and other consumer purchases that will be provided through the Feds TALF program. The recent rebound in equities should have at least a minor impact on consumer confidence. The forecast looks for modest increases in real consumer spending to continue through the rest of the year. The bounce in core retail sales has not led to any relief in the labor markets yet. The February labor market report was grim. And jobless claims are pointing to another downbeat report in March. Initial jobless claims have risen another 23,000 since the week of the February labor market report, continuing claims are up 197,000, and the insured unemployment rate has increased another 0.2% to 4.0%. The FOMC holds a two-day meeting next week, and the key issue is how the Fed will respond to the deepening recession. The statement could follow the January script, repeating that the Fed will employ all available tools and review ongoing programs including the TALF. However, there is a good chance that the Fed will want to reinforce the view that it is proactive and announce something new. The most likely option is an increase in the program to purchase MBS and agency debt. In the past, such unconventional steps were not announced at FOMC meetings. However, MBS and agency debt programs are properly the decision of the FOMC. And there was some concern on the Committee late last year that too many decisions that were essentially about monetary policy were being made outside the FOMC meeting venue. Buying Treasuries is another option, but the rhetoric of those near the center of the FOMC has backed away from that option in recent weeks.
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Retail sales
%ch saar, over 3 months 20 10 0 -10 -20 -30 -40 2007 Total retail sales 2008 2009 Core sales: ex autos, gasoline, and building materials
Initial jobless claims and continuing claims
Thousands, sawr, 4-wk avg 650 580 510 440 370 300 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Initial jobless claims Continuing claims Thousands, sa 5400 4900 4400 3900 3400 2900 2400 Apr 09
The upcoming calendar also includes the early March manufacturing surveys from the New York Fed (Monday) and the Philadelphia Fed (Thursday). The forecasts look for the surveys to signal some moderation in the rate of decline of activity, partly reflecting recent increases in core retail sales and partly the effects of recent increases in new car and light truck production. Auto output hit rock bottom in January and rebounded 24.7% in February (m/m, samr) and an estimated 20.7% in March.
Consumer spending: 1Q upside surprise
Real consumer spending declined about 4% saar in both the third and fourth quarters of last year. Against the backdrop of intensifying job losses and continued declines in equity prices and house prices, another (if more moderate) decline had been forecast for 1Q09. But large upside surprises for core retail sales in both January and February leave real consumer spending tracking a small gain this quarter. February retail sales declined 0.1% and were depressed by the previously announced decline in unit sales of new cars and light trucks. But core retail sales (ex autos, gasoline, and building materials) rose 0.5% in February following an upwardly revised 1.7% surge the month before. Combined January-February sales gains were exceptionally large for
JPMorgan Chase Bank, New York Robert Mellman (1-212) 834-5517 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
several categories of discretionary spending including electronics and appliance stores (up 8.8%, not annualized), clothing and accessory stores (7.8%), general merchandise stores (2.4%), and nonstore retailers including internet shopping (1.9%). Why core retail sales suddenly took off since January is a bit of a mystery. Disposable income surged 1.7% in January, but this was mostly owing to lower taxes rather than higher income. (Personal income rose only 0.4% in January following a combined 0.6% decline the previous two months). The lower tax payments mainly reflect tax consequences of reduced capital gains and other nonwage income. Stock-market losses are hardly a reason to boost spending, even if losses are partly offset by lower taxes. More likely, the nearly 8% annualized decline in core retail sales through the second half of last year was an exaggerated panic response to the deteriorating financial and economic climate. The latest readings leave spending at lower, but less dramatically lower, levels than prevailed in the middle of last year.
Merchandise export and import volumes
%ch saar, over 3 months 60 40 20 0 -20 -40 -60 2006 2007 Exports 2008 2009 Imports
Trade balance on goods and services
$bn, samr -10 -22 -34 -46 -58 -70 99 Total trade balance 01 03 05 07 09 Ex petroleum
January trade volumes plunge
Export and import volumes continued to plunge in January, a symptom of the global recession. Merchandise export volumes fell another 8.6% saar, leaving the January levels of export volumes a giant 52.3% saar below the 4Q08 average. The January decline in export volumes was exaggerated by a 28.5% monthly decline in export volumes of autos and parts, reflecting extensive January plant shutdowns. But the extreme weakness was broad-based, with both capital good and consumer good exports down about 8% in January. Import volumes fell 4.6% in January and are running 41.1% saar below the 4Q08 average. January import volumes of autos and parts fell 22.4%samr, accounting for close to half the decline in total import volumes. In real terms, the January trade balance was slightly wider than the trade balance for December or the 4Q08 average. Data through January are consistent with the forecast that net exports will subtract about 0.3% from annualized real GDP growth in the current quarter. However, the nominal deficit narrowed $3.9bn in January to $36.0bn, the narrowest monthly trade gap since late 2002, as the price of imported oil dropped $10 per barrel to $39.81 in January. Further improvement in the trade balance will get more difficult from here. The price of crude oil has increased since January, foreign economies appear to be contracting every
Price of imported manufactures
%ch over 6 months, nsa ar Consumer goods 6 ex autos 3 0 Capital goods -3 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09
Autos and parts
bit as much as is the US, and the appreciation of the dollar may dampen the US share in world markets. The trade balance should continue to get help from terms of trade effects, though. The real trade-weighted dollar has appreciated 17.8% over the past six months. Todays report on February import and export prices shows that the price of imported finished manufactures (capital goods, autos, and consumer goods) continue to slow and that price changes for the three categories are running well below their export price counterparts.
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JPMorgan Chase Bank, New York Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Focus: Consumer spending stabilizes
Retail sales were stronger than expected in February, the second month in a row that this has occurred. Moreover, January sales were revised up. The consumer is still under intense pressure from rising unemployment, but the sales data are without a doubt positive, and signal that the worst period of consumer adjustment is probably behind us. Indeed, after falling at a 4% annualized pace in 2H08, real consumption looks like it could actually increase as much as 1%, saar, in 1Q. Although retail sales were stronger than expected in February, they were still down 0.1%m/m. Sales at motor vehicle and parts dealers declined 4.3%, while retail sales excluding autos rose 0.7%. Sales at motor vehicle dealers are still a key weak spot. However, our auto equity research team believes that it is possible that unit auto sales could rise from 9.1 million, saar in February to as high as 10.5 million by midyear. Part of the reason for that is support from the TALF. Core retail saleswhich exclude auto dealers, building material stores, and gasoline stationsrose 0.5% in February and are up at a 4.0%q/q, ar pace so far in 1Q. In contrast, they fell 8.8%ar last quarter. The turnaround in core retail sales has been reasonably broad-based, with a significant swing in sales at electronics and appliance stores, clothing stores, sporting goods, hobby, book, and music stores, general merchandise stores, and nonstore retailers (which include online shopping). Sales at stores that are tied to the housing market remain weak. Sales at furniture and home furnishing stores have dropped at a 6.6%ar pace in 1Q, while sales at building material and garden supply stores fell 17.4%.
Retail sales of housing-related materials
%ch ov er 3 months, saar 60 40 20 0 -20 -40 00 Building materials and garden equipment 02 04 06 08 Furniture and home furnishings
Retail sales
%q/q, saar. 1Q09 is Feb/Jan over 4Q08 Retail sales Ex autos Control Control ex gas (core) Motor vehicles and parts dealers Furniture and home furnishing stores Electronics and appliance stores Building material and garden equipment stores Food and beverage stores Health and personal care stores Gasoline stations Clothing and accessory stores Sporting goods, hobby, book and music stores General merchandise stores Miscellaneous stores Nonstore retailers Food services and drinking places
1
3Q08 -5.1 0.1 0.4 -0.3 -25.7 -16.3 -10.8 -3.4 4.9 3.3 4.4 -5.0 -3.1 -0.1 3.7 -4.6 2.9
4Q08 -25.5 -23.2 -22.6 -8.8 -36.0 -19.3 -19.6 -22.5 -5.0 3.6 -73.3 -26.1 -14.6 -5.6 -17.7 -17.7 -1.9
1Q09 -5.4 -5.4 -4.0 4.0 -5.2 -6.6 21.0 -17.4 -0.1 3.6 -50.1 16.0 14.5 5.8 -12.3 2.8 4.2
1. Control series excludes auto dealers and building material stores.
Real consumption
%ch ov er 3 months, saar 10 5 0 -5 -10 00 02 04 06 08
Retail sales control measures
%ch ov er 3 months, saar 20 10 0 -10 -20 -30 00 Control (excludes autos and building materials) Control ex gas (core)
02
04
06
08
4
JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Economic Research note
Reserves and the Fed balance sheet
$bn 2500 2000 1500 1000 500 0 Liabilities: Deposits from depository institutions (reserves) 2007 2008 2009 Total assets
Reserves, exit strategies, and expansion strategies
The amount of reserves in the banking system is the choice of the Fed, not the banks A massive increase in reserves would create issues for bank balance sheets For this reason, as well as for an exit strategy, the Fed is considering different reserve management tools Bank reserves, or just reserves, are liabilities of the Federal Reserve. These liabilities have some special uses, notably to clear payments. These liabilities are also special in who may hold them: only institutions with Federal Reserve accountsprimarily depository institutionshold reserves as an asset. Despite these special features, one should not lose sight of the fact that reserves are part of the Feds capital structure. The recent increase in assets on the Federal Reserves balance sheet has created a corresponding increase in liabilities, mostly reserves. Because only banks hold reserves as an asset, the increase in the Feds balance sheet is being borne entirely by the banking system. With this in mind, the recent exploration by the Fed into alternative reserve management tools can be seen as preparing for either a bad outcome or a good outcome: If the economy turns out to be much worse than is currently expected, then the Fed will have to increase the amount of assets on its balance sheet. The corresponding liability that will increasein the absence of any change in how the Fed operateswill be reserves. This expansion could be massive. An increase in the Feds reserve liability implies a corresponding increase in the banking systems reserve assets. This could strain bank balance sheets. Alternative reserve management procedures would make the Feds liabilities open to a broader segment of private sector investors than just banks. If the economy begins to improve, then at some point the Fed will need to start raising interest rates. In principle, interest on reserves should allow the Fed to do this even when there are large amounts of excess reserves in the banking system. If the Fed wanted to supplement this approach through old-fashioned open market operations, they will first have to create conditions of scarcity in the market for reservesi.e., the fed funds market. To do this they would have to reduce the massive amount of this liability, reserves, which has been created , which
would require a corresponding massive reduction of assets on the Fed balance sheet. Because such a reduction could be disruptive, the Fed is exploring replacing reserves with some other liability.
The uses of reserves
Banks are required by law to hold reserves equal to a certain fraction of their demand deposits. Cash that banks hold in their vault count against banks legal reserve requirement, so the amount of reserves that banks need to hold in their account at the Fed will be their required reserves less the cash in their vault. When banks need more cash for their vaults, they request this cash from the Fed, which will then debit the banks reserve account balance. The demand for cash on the part of the public is a slow-moving variable that responds only weakly to economic conditions. Demand for cash is probably more responsive to external conditions: a significant share of US currency is held overseas; demand from this sector increases in periods of geopolitical uncertainty. Currency demand over short periods could be thought of as an exogenous and relatively fixed quantity. Reserves serve as a means of clearing payments between banks. Payments between banks on behalf of their customers are settled by the Feds moving reserves from the account of the bank making the payment into the account of the bank receiving the payment. Large-value transactions are cleared primarily through two systems: Fedwire and CHIPS. Although the latter is privately operated, both systems ultimately use reserves to settle payments. The important thing is that settling payments moves reserves across the banking system, but does not change the total amount of reserves. Moreover, no reasonable activity on the part of the banks will change this amount. The only thing a banks reserves can becomeother than another banks reservesis cash. As we noted earlier, the demand for cash changes slowly, so increasing vault cash will only increase banks storage and handling costs.
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
A corollary to the above point is that increased (or decreased) lending will not change the amount of aggregate reserves within the banking system. For example, Bank A lends money to a business by writing that business a check. The business deposits that check in its own bank, Bank B, which presents that check to the Fed. The Fed then debits the reserves of Bank A and credits the reserves of Bank B. Reserves have been neither created nor destroyed, they have just changed hands. The Fed is the only institution that can change the aggregate amount of reserves. As discussed below, the Treasury can also drain reserves. But the main point it that as with any corporation, the amount of outstanding liabilities is under the control of the issuing corporation, not the investing public that holds the corporations liabilities. Of course, any single bank can decrease its reserves to very small levels, but it is a fallacy of composition to infer that therefore the entire banking system can decrease its reserves.
Reserves and commerical bank balance sheets
$bn, both scales 12500 12000 11500 11000 10500 10000 9500 2007 2008 2009 Cash assets 600 400 200 Total assets 1200 1000 800
Potential issues for the banking system
When assets on the Feds balance sheet increase, its liabilities will necessarily increase as well. Those liabilities are primarily reserves. Reserves can only be held by banks. Once reserves enter the banking system, no action on the part of the banks will decrease the aggregate amount of reserves. To see how this could become an issue for the banking system, consider if the Fed wished to buy $5 trillion in securities. This would imply that the aggregate balance sheet of the banking system would now have $5 trillion more of cash assets, namely, reserves. If the securities are purchases directly from the banks, there will be no change in bank balance sheets. However, securities purchased from nonbank investors will cause bank balance sheets to expand, as the funding will again be through reserves that cannot leave the banking system. Although this asset has zero-weighted risk, it will increase banks leverage ratios. For this reason, banks may be inclined to reduce other forms of credit. Thus far, the increase in reserves has been limited enough not to be a problem. Given that much of the expansion of the Feds balance sheet has filled in vacuums left when banks shied away from interbank and other forms of lending, the growth in cash assets on bank balance sheets has likely simply filled in holes on the asset side of bank balance sheets. A massive further increase in Fed lending or securities purchases could be more problematic. Because TALF and, to a certain extent, the mortgage purchase programs are filling in for gaps in the shadow banking system, the reserves created would not necessarily supplant a contraction in bank credit. For this reason, the Fed is ex6
ploring means of funding other than reserve creation. There are two options that have received heightened attention: the issuance of interest-bearing Fed bills, and the revival of the Supplementary Financing Program (SFP), in which the Treasury issues bills and deposits the proceeds in the Treasurys account at the Fed. Both options create a liability for the Fed. Unlike reserves, these liabilities are portable: investors other than banksmoney funds, insurance companies, pension funds, etc.will be able to hold these as assets. In the process, the Fed would avoid placing the burden of higher leverage on the banking system.
Dual purpose to new tools
If the Fed does not need to buy huge amounts of new securities, but is instead faced with the happier outcome that the economy is growing and therefore interest rates need to rise, new reserve management tools could still be helpful. In principle, the ability to pay interest on reserves means that the Fed can raise interest rates even with large amount of excess reserves in the banking system. In practice, this has not worked as planned. If the Fed decides that because of this experience they want to raise interest rates the oldfashioned way, by creating conditions of scarcity in the market for reserves, then replacing reserves with another liability on the Fed balance sheet would further this goal: reserves would be drained by the issuance of either Fed bills or SFP bills. Either option, issuing bills or ramping up the SFP, would probably require Congressional action. To be sure, the SFP can and has been operated without Congressional involvement, but if the facility were to dramatically increase in size, it would risk bumping into the debt ceilingthe Congressionally mandated limit on how much in securities the Treasury can issue. However, if the economy gets much better, or much worse, the Fed will benefit from having additional tools for reserve management.
JPMorgan Chase Bank, New York Robert Mellman (1-212) 834-5517 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Economic Research note
Domestic nonfinancial debt, ex federal government
%ch saar 15 10 5 0 -5 From year ago
Flow of funds slows to a trickle
Nonfederal borrowing declined in 4Q08 for the first time since the series started in 1952 Households used increased savings to pay down debt rather than buy financial assets Wealth destruction has brought household wealth to income ratios down to mid 1980s levels Previously released data have already described the sharp downturn in economic activity in 4Q08 and the consequences for the labor market. The release of the Feds Flow of Funds for 4Q08 documents the contraction in lending and borrowing, other than by the federal government, that was so important in sending the economy and the equity markets into a downward spiral. Net borrowing by the nonfinancial sector (that is, excluding the federal government) turned negative for the first time in a series that dates back to 1952, with outstanding debt of the household sector declining at a 2.0% annual rate and growth of nonfinancial business debt slowing to 1.7% saar from double-digit growth as recently as 4Q07. Borrowing by the federal government exploded through 2H08. Net lending by the financial sector in 4Q08 was about back to 2007 levels (second table). But, of course, this is only if lending by the Fed, including lending through funding corporations to Maiden Lane and AIG, is added in. All other financial sector lending in 4Q08 slowed to only about 17% of the pace in 2007. The table documents the 4Q08 slowdown in net new lending by banks and the outright decline in loans held by brokers and dealers, ABS issuers, mutual funds, and others including finance companies and insurance companies.
From previous quarter
89
91
93
95
97
99
01
03
05
07
Household sector wealth in relation to disposable income
Ratio, chart includes estimate for Marcfh 2009 650 600 550 500 450 400 60 65 70 75 80 85 90 95 00 05
Total net borrowing by the domestic nonfinancial sector
$bn saar 2007 Total Private Households Nonfin. corporate business Other nonfin. business State and local govt. Federal government 2500 2077 849 801 427 186 237 1H08 1333 923 227 417 279 48 362 3Q08 2627 480 29 305 146 69 2079 4Q08 2089 -94 -279 157 28 27 2155
Total net lending by the domestic financial sector
$bn saar 2007 1H08 2138 -456 459 2135 443 381 603 -139 -357 304 668 232 3Q08 2465 1084 614 767 501 131 508 374 -369 -67 -178 -133 4Q08 3016 812 1673 531 135 -102 292 -439 -599 -241 1749 -264
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Poorer households are borrowing less
The Flow of Funds also documents the massive destruction of household wealth from falling stock prices and house prices. Household net worth declined $5.1 trillion to $51.5 trillion in 4Q08, and is nearly $13 trillion below its peak in 2Q07. The 4Q08 percentage decline in household wealth, 31.5% saar, is by far the largest in the history of the series. The ratio of household wealth to income quickly dropped from extreme highs in mid-2007. And with both stock prices and house prices now lower than in 4Q08, the ratio of wealth to income has fallen back down to mid-1980s levels. The abrupt and severe decline in household wealth
Total Monetary authority Funding corporations All other Banks, savings institutions GSEs Agency/GSE mortgage pools Broker dealers ABS issuers Mutual funds Money market funds All other
3067 -38 -67 3172 823 239 626 220 314 271 385 294
JPMorgan Chase Bank, New York Robert Mellman (1-212) 834-5517 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
is an important motivation for the decline in consumer spending and surge in the saving rate through January. Net borrowing by households turned negative in 4Q08, as both mortgage debt and consumer credit declined. The declines were in line with the sharp downturn in both home sales and consumer spending on durables in the fourth quarter. Flow of Funds data cannot resolve the issue of how much of the decline in borrowing reflected tight credit conditions and how much reflected cyclical weakness in spending for other reasons. The rise in the saving rate freed up household income that could be used for financial investment or for paying down debt. An earlier research note, (US households to scale back balance sheets, USWP, Nov 7, 2008) argued that a rising saving rate would probably be associated with a paydown in debt and a decline of flows into financial investments. This is exactly what occurred in 4Q08. Household debt was reduced, and the net acquisition of financial assets turned sharply negative.
Household sector, net increase in liabilities
$bn, saar 1500 1000 500 0 -500 All credit market instruments
Home mortgages Consumer credit
2005
2006
2007
2008
Household net acquisition of financial assets and increase in liabilities
$bn, saar 1500 1000 500 0 -500 -1000 -1500 00 02 04 06 08 Acquisition of financial assets Increase in liabilities
Business adjusts to recessionary times
Business debt continued to growth in 4Q08, but the rate of growth of debt slowed to only 1.7% saar from a recent peak of 15.1% in 3Q07. Detail of the Flow of Funds shows that corporate bond issuance accounted for more than all the net increase in credit market liabilities. Strong corporate bond issuance has continued into 1Q09. The Flow of Funds also provides an early estimate of 4Q08 profits for the nonfinancial corporate sector which is compared to capital spending figures to derive the financing gap. These estimates indicate that capital spending contracted even more than internal funds, and that the financing gap declined from $127.9 bn saar in 3Q08 to $67.6bn saar in 4Q08, the smallest financing gap in several years. This underscores the extent to which corporates are adjusting quickly to recessionary times. The Flow of Funds also shows financial adjustments that nonfinancial firms have been making to conserve cash. For example, nonfinancial corporates have reduced net dividend payments from their average 2007 levels. But by 4Q08, these cuts were modest and saved only $7.7 billion, saar. In contrast, net stock buybacks were cut almost in half between 2007 and 2H08, saving $409.6 billion saar.
Net funds raised in credit markets and financing gap
$bn, saar, nonfinancial corporate business 900 Financing gap
$bn, saar 300 250
600
200 150
300
Net funds raised in credit markets 2006 2007 2008
100 50 0
0
Business net stock buybacks and dividends paid
$bn, saar, nonfinancial corporate 1200 1000 800 600 400 200 2006 Dividends 2007 2008 Net stock buybacks
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JPMorgan Chase Bank, New York Bruce Kasman (1-212) 834-5515 [e-mail] David Hensley (1-212) 834-5516 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Global Data Watch
Collapse in global manufacturing is magnified by inventory adjustment Recent focus of demand weakness has shifted from consumers to businesses Global policymakers seek consensus on how to refinance EM external debt Chinas economy begins to bounce back while the forecast is for an even deeper recession in Japan
The song does not remain the same
The flow of downbeat indicators on industrial activity and international trade continued this week, testimony to the pronounced weakness of global goods demand. Manufacturing is the timeliest and most comprehensive gauge of goods expenditures. We estimate that global factory output fell 3%m/m in January, similar to in November and December. Moreover, the severity of this downward momentum points to a drop in global IP of 25-30% annualized this quarter, in excess of the 22% decline recorded in 4Q08. The continued nosedive in manufacturing suggests that global GDP will fall deeply again, similar to the 6.7% decline recorded in 4Q08. The continued slide in global manufacturing is occurring against a backdrop of more mixed trends in final demand. The accelerated fall in G3 capital goods orders implies that global business equipment spending will fall even more this quarter than last (about 18%ar). However, consumer spending has firmed in recent months, a pattern that appears to have extended through February. The decline in global retail sales volume slowed to a crawl around the turn of the year, partly owing to a leveling off in global vehicle sales. This weeks first glimpse at household spending in February delivered a further positive surprise. The solid gain in US core retail sales put US real consumer spending on track for a modest gain this quarterthe first since 2Q08. More broadly, our preliminary estimate shows that global vehicle sales surged in February, spurred by sales incentives in China, Brazil, and Western Europe.
Global IP and final sales proxy
%3m, saar 10 0 -10 -20 -30 -40 2006 2007 FS = -2.2 + 1.0*Retail sales + 0.4*G3 shipments IP 2008 2009 FS
Global motor vehicles
%3m, saar 40 20 0 -20 -40 -60 -80 2006 2007 2008 2009 Production Sales
Note: Final sales proxy is estimated from a regression of the growth of global IP on the growth of global retail sales volume and G3 aggregate capital goods shipments.
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JPMorgan Chase Bank, New York Bruce Kasman (1-212) 834-5515 [e-mail] David Hensley (1-212) 834-5516 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
EM corporate bond and syndicated loan maturities total for 2009 US$, million (J.P.Morgan estimate as of Dec 08) 40 35 30 25 20 15 10 5 0 Kwt Arg Chn Sgp Hkg Twn Kaz Ind Kor Ukr Bra Tur Chl Phl Mex Rus Uae
corporates from countries as far flung as Korea, Mexico, the UAE, and Russia are facing challenges to roll over external debt. Another angle on the same problem is the fact that households in many EM countries borrowed heavily in foreign currency, which is generating systemic risks across local and foreign banks. Financial sector risks have become particularly acute in Central Europe. Bank lending in Central Europe has grown aggressively over the past decade, funded by external borrowing (largely from European parent banks). Household credit has expanded particularly fast, driven by foreign currency mortgage and auto loans. In these markets, credit to GDP is generally in or above the 50-60% range and foreign banks tend to control 60-70% of the banking sector. The high level of foreign currency lending (especially in the household sector) is now making the external adjustment painful, while concerns are mounting both with respect to the willingness and ability of stressed European banks to recapitalize their local subsidiaries if asset quality pressures mount, and in terms of the ability of Central European governments to manage any failure of the local subsidiaries of Western banks, with the ensuing fiscal consequences. As a result, one of the issues for possible discussion at the G20 summit is the scope for cross-border assistance for troubled financial systems, or mechanisms to minimize the damage wrought by an increased home bias among institutions receiving taxpayer assistance in developed markets. The initiative embraced this week by the US Treasury to dramatically expand available IMF resources appears designed specifically to reinforce the multilateral communitys capacity to respond to further pressures in these countries, and in others where the threat of contagion from the developed world financial crisis persists.
This backdrop, in which the rate of decline in global IP significantly exceeds that of final demand, implies a sharp downshift in business inventory growth (see Global inventory adjustment gathering steam page 9). Most of the progress is being made in the consumer goods sector. One important example is the global auto sector, where production fell at a 60% annual rate in the three months to January despite the firming in sales. By contrast, the steep slide in capex makes it harder for businesses to gain ground in that sector. Although the process is far from complete, a successful inventory adjustment would help pave the way for a stabilization in manufacturing and GDP toward midyear. The key is to avoid a new wave of consumer retrenchment. It remains to be seen whether the recent improvement in household spending was mostly in response to the transitory purchasing power boost from lower energy prices. Moreover, the headwinds to consumer spending remain fierce. The downturn in global labor markets is deepening, as highlighted by the broad swoon in this weeks Manpower Global Employment Outlook survey. Moreover, financial stresses remain intense. This weeks 8.3% jump in global equity markets was a welcome positive sign, but prices are still down 13.7%ytd and were down 21.2% in 4Q08. This last point was underscored with this weeks revelation that US household net worth plunged $5.1 trillion last quarter.
SNB launches QE and currency cap
On the heels of the Bank of Englands dive into QE, the Swiss National Bank announced its intention to commence outright asset purchases to expand its balance sheet. The SNB passed on the opportunity to purchase government paper, instead choosing to buy Swiss corporate bonds. However, given that the SNB has not stated either the quality or quantity of the assets it intends to purchase, drawing direct parallels with QE actions by the Fed, BoJ, or BoE is difficult. Moreover, the SNBs approach has a unique and controversial twist, as the central bank announced it would purchase foreign currency to stem the recent appreciation of the Swiss franc against the euro. The last DM country to aggressively intervene in the fx markets was Japan in 2003-04. The SNB did not reveal an explicit target for the currency. But its
Private sector external liabilities haunt EM
In contrast to the tentative signs of healing in DM credit markets, stresses are mounting in the emerging markets. A combination of duration and currency mismatches in external debt along with fx derivative exposures gone bad is plaguing the group. EM corporates raised some $1.3 trillion in external debt from syndicated loan and bond markets between 2006 and the third quarter of 2008. Since this borrowing had relatively short maturitieswith over $200 billion coming due in 2009refinancing risks have increased amid the tightening in global credit markets. Banks and
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JPMorgan Chase Bank, New York Bruce Kasman (1-212) 834-5515 [e-mail] David Hensley (1-212) 834-5516 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
China bank loans and real fixed asset investment
% ch over 12 mo, both sales; FIA deflated with PPI 25 Loans Real investment 50 40 20 30 20 10 10 99 01 03 05 07 09 0
current quarter, industrial output would need to bounce in February and March. Having made downward revisions to the 2009 GDP forecast for the US and Euro area last week, we followed suit this week in Japan. The reasons were threefold. First is the weaker export profile for this year. Second is the weaker path of domestic demand registered in the highfrequency consumption and capex indicators in early 2009. Third is that we now anticipate a deeper and more protracted inventory adjustment (partly owing to the upwardly revised inventory contribution to 4Q08 GDP). Consequently, we now expect GDP to shrink at an annualized pace of 15.0% in 1Q09 and fall another 4.5% in 2Q, downward revisions of 3% and 2% points, respectively. Fiscal stimulus, aimed at supporting consumption, is expected to cushion the rate of GDP decline beginning in 2Q, however.
15
intervention comes at a time when EUR/CHF had approached 1.47, a similar level to earlier in the decade that in part motivated the SNB to cut the policy rate aggressively. The recent QE announcements by the SNB and the BoE raise questions about whether the FOMC will announce any new steps next week. BoEs The striking success in bringing down long-term gilt yields has led to renewed speculation that the Fed might buy long-dated Treasuries. However, one reason the BoE may have been so successful is because just the initial round of Gilt purchases will total roughly 20% of the outstanding market. The equivalent of over $1 trillion in US Treasuries may be too large for many FOMC members to stomach. Moreover, Treasury purchases would violate Bernankes principle that the Fed only consider intervening when market functioning is severely disrupted. Should the FOMC take any action at the next meeting, we think the most likely path is to follow through on the often mentioned option of increasing the size of the MBS and agency debt purchase programs.
China's economy begins to bounce back
Chinas economy appears to be accelerating in response to policy stimulus, albeit in an unbalanced way. One sign of the growth pickup is that loan growth has surged to 24%oyarivaling that during the overheating phase of late 2003. A good deal of this loan growth is fueling fixed investment spending. It also seems likely that the pace of inventory accumulation has switched from being a drag on growth to a support. Property sales volume in major cities rebounded. Although car sales surged, total retail sales were somewhat sluggish. The net pickup in domestic goods demand has restarted sequential growth in industrial production, consistent with our view that Chinese growth, in sequential terms, bottomed in 4Q08. Still, the pickup in the economy remains tentative. Premier Wen acknowledged this in todays press conference when he emphasized that the government stands ready to enact further stimulus measures if needed. In the event, policymakers are likely to fix their sights on boosting consumption. The government has already announced several sector-specific measures, including tax cuts on autos purchases and subsidies for home appliance purchases, which have proven to be effective. In addition, tax cuts for lowincome individuals and households are also still a possibility, as are measures to support the equity market and encourage property transactions.
The axis of contraction
Although GDP in the Euro area is tracking our downwardly revised projection for a 5% annualized decline in 1Q09, output in Germany appears to be underperforming the rest of the region by an even bigger margin than it did in the fourth quarter. German IP crashed 7.5% in January, accompanied by a sizable drop in exports. The level of factory output now stands nearly 40% below the 4Q08 average and, if maintained, would point to a Japanese-like contraction in German GDP of around 12%. In contrast to the abysmal supply side data, the most recent monthly demand indicators for Germany have been more mixed. Capital spending continues to plunge, but an incentive-induced surge in auto sales raises the possibility of a sizable gain in household spending. For now, we are leaving our forecasts unchanged, recognizing that the risks around Germany are skewed to the downside. To realize anything close to our current forecast of a 5% contraction in German GDP in the
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
US Indicator Forecasts
JPMorgan Research versus the consensus Release date/ Indicator
Mon, Mar 16 Empire State survey (Mar) Industrial production (Feb) Capacity utilization NAHB survey (Mar) Tue, Mar 17 PPI (Feb) Core Housing starts (Feb) Permits Wed, Mar 18 CPI (Feb) Core Current account (4Q) Thu, Mar 19 Initial jobless claims (w/e Mar 14) Philadelphia Fed survey (Mar)
JPMorgan forecast
-30.0 -0.5% 71.6% 9
Consensus median
-32.0 -1.3% 71.0% 9
Consensus range
-40.0 to -25.0 -2.2% to -0.3% 70.2% to 71.8% 8 to 11
0.6% 0.1% 440k 500k
0.4% 0.1% 450k 500k
0.0% to 1.2% -0.2% to 0.3% 420k to 500k 475k to 525k
0.4% 0.1% -$135 bn
0.3% 0.1% -$137.5 bn
0.1% to 0.6% 0.0% to 0.2% -$165 bn to -$116 bn
650k -35.0
660k -39.0
640k to 690k -45.1 to -30.0
Source: consensus forecasts reported by Bloomberg.
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Manufacturing surveys (Mar)
Empire State survey (Mon, Mar 16, 8:30am) Philadelphia Fed survey (Thu, Mar 19, 10:00am) Last month, the regional manufacturing reports provided a misleading signal on the ISM manufacturing survey. The regional surveys generally weakened, yet the ISM index edged up to 35.8 in February from 35.6 in January. Still, regardless of whether one looks at the regional surveys or the ISM, the message is the same: manufacturing activity is falling at a rapid pace, and there are no signs that the rate of decline is moderating yet.
ISM manufacturing index vs. Empire and Philly Fed surveys
Index , sa 65 60 55 50 45 40 35 30 ISM manufacturing index Index , sa 40 20 0 Average of Em pire and Philadelphia ISM-weighted com posites 02 03 04 05 06 07 08 09 -20 -40
Capex plans
Index , 3mma, w eighted av erage of regional Fed manufacturing surv ey s 30 20 10 0 -10 -20 00 02 04 06 08
Empire State survey: employment
Index , sa 40 20 0 -20 -40 01 03 05 07 09
Philadelphia Fed survey: employment
Index , sa 30 20 10 0 -10 -20 -30 -40
80
85
90
95
00
05
Regional manufacturing surveys
Diffusion index Empire State survey ISM-weighted composite1 New orders Shipments Philadelphia Fed survey ISM-weighted composite1 New orders Shipments Aug 08 -1.2 49.3 -3.5 -1.1 -20.1 45.4 -15.2 -6.1 Sep 08 -9.7 48.9 2.4 -2.1 1.9 46.8 3.8 -1.3 Oct 08 -24.3 44.1 -19.6 -9.4 -38.7 39.0 -30.6 -17.6 Nov 08 -24.9 40.2 -22.3 -15.1 -39.8 38.7 -29.3 -19.3 Dec 08 -27.9 41.5 -23.5 -11.3 -36.1 35.7 -28.2 -29.7 Jan 09 -22.2 40.0 -22.8 -13.1 -24.3 36.1 -22.3 -16.7 Feb 09 -34.7 40.2 -30.5 -8.1 -41.3 33.8 -30.3 -32.4 Mar 09 -30.0
-35.0
1. The ISM-weighted composite weights the components of the regional surveys by the weights used in the ISM manufacturing index.
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Industrial production (Feb)
Released on Mon, Mar 16 at 9:15am
Industrial production likely declined 0.5%m/m in February, a smaller decline than in the previous few months. The relatively small drop was due to the biggest percentage increase in auto assemblies in over a decade. Nonetheless, IP in the first quarter will probably fall at the fastest pace since at least 2Q80, when it dropped 15.9% annualized. It may seem surprising that auto production surged in February, given that sales were at a cycle low and inventories were well above normal at the end of January. The reason is that assemblies fell a record 41.0% in January, as many plants were kept closed beyond their normal holiday shutdown. After those plants reopened, the assemblies jumped 24.7% in February. Because of the trajectory of vehicle production early in the year and scheduled increases in output in March, April, and May, production is on track to rise at a 205% annualized pace in 2Q. Assuming that light vehicle sales rise to around 10 million, saar, by the middle of the year, then the inventory/sales ratio will return to more normal levels, even with the projected rise in auto output. Actual production may be somewhat lower than scheduled, as recently schedules have been consistently too optimistic. Manufacturing production excluding motor vehicle and parts should have been quite weak in February. According the employment report, hours worked in the manufacturing ex auto sector fell 2.0%m/m in February, the same as in January.
Auto production, including schedules for future production (sa)
%m/m unless otherwise noted Jan Feb Mar 1Q (%ch, q/q saar) Apr May Jun 2Q (%ch, q/q saar) Total -41.0 24.7 20.7 -81.1 11.0 15.0 8.2 204.9 Cars -56.1 23.5 48.0 -93.5 1.9 4.6 -0.1 497.0 Trucks -29.6 25.3 7.1 -61.8 -6.8 -6.7 -6.9 95.9
Actual data through February. Source: Wards automotive.
Manufacturing production
%ch ov er 3 months, saar 30 20 10 0 -10 -20 -30 80 85 90 95 00 05
Manufacturing capacity utilization will probably fall below the postwar low that was reached in January. Capacity utilization in that month was just 68.0%, down from the recent peak of 80.1% that was reached in July 2007.
Industrial production
%m/m, sa Industrial production Manufacturing Durable Motor vehicles and parts High tech Nondurable Mining Utilities Mfg ex motor vehicles and parts Business equipment Capacity utilization (%) Total industry Manufacturing
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Jul 08 0.0 -0.2 0.1 2.3 0.4 -0.4 1.5 -1.0 -0.3 -0.4 79.4 77.1
Aug 08 -1.3 -1.1 -1.5 -10.8 -0.8 -0.7 -0.5 -4.6 -0.4 -0.4 78.3 76.2
Sep 08 -4.1 -3.8 -3.3 1.0 -1.2 -4.6 -9.8 1.6 -4.1 -7.4 75.0 73.2
Oct 08 1.6 0.6 -2.5 -4.1 -2.9 3.9 7.9 1.8 0.9 -2.9 76.1 73.6
Nov 08 -1.2 -2.2 -2.3 -2.2 -6.1 -2.2 2.5 2.0 -2.2 2.1 75.2 71.9
Dec 08 -2.4 -2.9 -3.0 -8.1 -6.2 -2.9 -1.0 -0.2 -2.6 2.4 73.3 69.7
Jan 09 -1.8 -2.5 -4.8 -23.4 -3.2 -0.5 -1.3 2.7 -1.4 -3.7 72.0 68.0
Feb 09 -0.5 -0.7 18.0
1.4 -1.8 -1.5
71.6 67.4
JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
NAHB survey (Mar)
Released on Mon, Mar 16 at 1:00pm
The NAHB housing market index, which had recently been at an all-time low of 8, edged up to 9 in February. We expect it to stay there in March, which would be a reasonable signal that home sales are still terrible. The most positive thing going for the housing market is the large rise in affordability that we have seen develop through lower prices and mortgage rates. Over time this will support the market. However, affordability may take some time to lead to a rise in sales, especially in an environment where the economic is contracting rapidly, credit is tight, prices are falling and foreclosures are still high, and there is probably less of a tendency to see a home as an investment.
NAHB housing market index
Index , sa 80 60 40 20 0 85 90 95 00 05
NAHB index of present sales vs. future sales
Index , sa 100 80 60 40 20 0 85 Present sales 90 95 00 05 Future sales
NAR housing affordability index
Index , 100=qualify for mortgage 180 160 140 120 100 90 92 94 96 98 00 02 04 06 08
NAHB index of prospective buyer traffic
Index , sa 70 60 50 40 30 20 10 0
85
90
95
00
05
Homebuilders survey
Overall Sales: present time Sales: next 6 months Prospective buyer traffic Aug 08 16 16 24 13 Sep 08 17 17 28 14 Oct 08 14 14 19 11 Nov 08 9 9 18 7 Dec 08 9 8 16 7 Jan 09 8 6 17 8 Feb 09 9 7 15 11 Mar 09 9
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
PPI (Feb)
Released on Tue, Mar 17 at 8:30am
We forecast that the PPI increased 0.6%m/m in February and that the core PPI rose 0.1%. Core inflation rose a sizable 0.4% in January, but this may have been because of seasonal adjustment difficulties, and the trend is now likely much lower. The reason is that intermediate goods prices have fallen sharply, inventories are high in the manufacturing sector, and demand is very weak. We estimate that wholesale gasoline prices increased around 15% between the mid-month PPI sampling periods. We expect a rise of roughly 4% in total energy prices. Meanwhile, prices received by farmers fell 8.6% in February, leading us to expect a third consecutive monthly fall in the food PPI. Before rising 0.4% in January, the core PPI increased 0.1% in November and 0.2% in December. However, in every year save one since 2003, the January core PPI has risen at least 0.2 % point more than the average change in the preceding and subsequent two months. This suggests a seasonal adjustment problem that will likely be reversed in February. In addition, it is possible that the volatile light vehicle segment, where prices have risen in each of the last two months, pulled back.
PPI for finished goods
%oy a 15 10 5 0 -5 80 85 90 95 00 05
Core consumer goods PPI and core goods CPI
%oy a 6 4 2 0 -2 -4 Core goods CPI 90 92 94 96 98 00 02 04 06 08 Core consum er goods PPI
Core intermediate PPI, ISM prices paid
%ch ov er 3 months, saar 30 20 10 0 -10 -20 -30 01 03 Core intermediate 05 07 09 ISM prices paid Index , nsa 100 80 60 40 20 0
Producer prices
Oct 08 -2.7 0.4 -12.8 0.0 -1.3 1.5 -3.8 -1.5 -17.2 -15.6 Nov 08 -2.5 0.1 -12.4 0.2 -1.1 -0.3 -4.3 -2.2 -12.6 -20.8 %m/m,sa Dec 08 -1.9 0.2 -9.1 -1.4 1.5 0.7 -4.2 -2.9 -5.3 -2.2 Jan 09 0.8 0.4 3.7 -0.4 0.3 0.5 -0.7 -1.1 -2.9 0.1 Feb 09 0.6 0.1 4.2 -1.0 -0.5 -0.5 -1.0 Oct 08 5.2 4.4 5.5 6.5 2.4 2.6 10.2 9.7 -1.4 -3.1 Nov 08 0.4 4.2 -15.4 6.7 1.2 0.6 2.6 6.4 -19.4 -22.1 %oya, nsa Dec 08 -0.9 4.3 -20.3 3.7 3.1 2.3 -1.7 3.2 -25.0 -24.3 Jan 09 -1.0 4.2 -18.4 1.8 3.0 1.9 -3.5 1.2 -29.1 -27.9 Feb 09 -1.1 3.8 -17.0 1.5 1.8 1.1 -0.5 -30.5
PPI, finished goods Core Energy Food Autos Trucks PPI, intermediate goods Core PPI, crude goods Core
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Housing starts (Feb)
Released on Tue, Mar 17 at 8:30am
We expect that housing starts dropped from an annualized pace of 466,000 in January to 440,000 in February. Although housing starts are running below sales, inventories are still too high compared to sales. For instance, the months supply of new single-family homes for sale was a record 13.3 in January. Our forecast of a 5.6% decline in housing starts last month is considerably smaller than the drops of 14.6% in November, 14.5% in December, and 16.8% in January. One reason to expect a smaller decline in starts is that single-family housing starts in permit issuing places were roughly equal to permits in January. In earlier months, permits had run below starts, signaling further reductions in inventories. Also, permits for multifamily structures rose in January for the first time since June. While starts may be nearing a bottom, the number of homes under construction will still probably drop a considerable amount, thereby reducing economic output and employment. Consider that there were 787,000 units under construction in January. Using data on the length of time it takes to complete a home, and assuming that starts remain near their current level, we can determine that homes under construction could be cut almost in half by the end of the year.
Housing starts
Mn, saar 2.5 2.0 1.5 1.0 0.5 59 64 69 74 79 84 89 94 99 04
Multifamily starts, permits
Mn, saar 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 Multifamily permits
Multifamily starts 90 95 00 05
Single-family permits / Single-family starts in permit-issuing places
1.10 1.05 1.00 0.95 0.90 0.85 0.80 90 92 94 96 98 00 02 04 06 08
Housing starts
Millions of units, saar Total Single-family Multifamily %m/m, sa Total Single-family Multifamily Oct 08 0.767 0.536 0.231 -6.9 -2.7 -15.4 Nov 08 0.655 0.456 0.199 -14.6 -14.9 -13.9 Dec 08 0.560 0.395 0.165 -14.5 -13.4 -17.1 Jan 09 0.466 0.347 0.119 -16.8 -12.2 -27.9 Feb 09 0.440 0.320 0.120 -5.6 -7.8 0.8
Housing permits
Millons of units, saar Total Single-family Multi-family %m/m, sa Total Single-family Multifamily Oct 08 Nov 08 0.730 0.615 0.470 0.414 0.260 0.201 -9.3 -12.6 -2.6 -15.8 -11.9 -22.7 Dec 08 0.547 0.364 0.183 -11.1 -12.1 -9.0 Jan 09 0.521 0.335 0.186 -4.8 -8.0 1.6 Feb 09 0.500 0.320 0.180 -4.0 -4.5 -3.2
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JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
CPI (Feb)
Released on Wed, Mar 18 at 8:30am
We expect that the CPI increased about 0.4%m/m in February and that the core CPI rose 0.1%. The pace of core inflation would be slightly higher than in 4Q, when prices rose on average just 0.02%m/m, but lower than in January, when prices increased 0.18%. Seasonally adjusted retail gasoline prices increased 8.3%, which is the main reason why we look for a close to 4% rise in the overall energy CPI. We expect no change in food prices, based on renewed declines in prices received by farmers, and a 1.8% decline in the consumer food PPI between November and January. Core inflation firmed in January for a number of reasons. These included higher inflation for owners equivalent rent (OER) and medical care, as well as an increase in new vehicle prices after five months of declines. OER, which accounts for almost a third of the core CPI, could have remained firm in February. The reason is that OER is derived from a weighted sample of rents, less the cost of utilities. When utility prices drop sharply, as they have recently, then the difference between the growth rate of OER and rent can narrow. With rent having grown at a faster pace than OER for some time, this would imply an increase in OER inflation.
Consumer prices
Oct 08 -0.8 -0.01 0.4 -7.8 0.0 0.15 -1.1 0.30 -0.7 -0.5 -1.6 -3.8 0.2 0.5 0.0 -0.3 0.1 2.166 Nov 08 -1.7 0.05 0.2 -16.9 -0.1 0.24 -0.8 0.26 0.1 -0.4 -1.4 -3.5 0.2 0.4 0.1 -0.1 0.1 2.124 %m/m, sa Dec 08 -0.8 0.01 0.0 -9.3 0.0 0.06 -0.6 0.18 -0.6 -0.3 -0.7 -1.2 0.3 0.5 0.2 -0.2 0.1 2.102 Jan 09 0.3 0.18 0.1 1.7 0.0 0.26 -1.1 0.33 0.3 0.3 -0.8 -2.1 0.4 0.3 0.2 0.1 0.2 2.111
Core CPI
Percent 8 6 4 2 0 90 92 94 96 98 00 02 04 06 08 %ch over 3 months, saar %oya
Medical care inflation will probably moderate some in February. Outpatient medical care rose more in January than at any other time since the series began in 1987; this seems unlikely to be repeated, and something that was possibly due to changes in medical care pricing around the start of the year. Why retail vehicle prices rose in January is a bit unclear, given that inventories are very high. It is true that the PPIs for vehicles have firmed over the last couple months, but the relationship between the vehicle CPI and PPI is loose. We suspect that vehicle prices will have dropped in February, as inventories are still high, and demand was weak. Retail unit auto sales fell 11% on the month.
CPI, All items Core Food Energy Housing Owners' eq. rent Lodging away from home Rent Apparel New vehicles Used vehicles Airfares Medical care Education Communication Core commodities Core services CPI, All items (NSA index level)
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Feb 09 0.4 0.12 0.0 3.8 0.20 -1.5 0.25 0.1 -0.1 -0.5 -1.0 0.3 0.2 0.0 0.3 2.118
Oct 08 3.7 2.2 6.3 11.5 3.2 2.3 -1.4 3.7 0.3 -2.3 -5.2 10.4 2.8 5.9 1.0 0.1 3.0
Nov 08 1.1 2.0 6.0 -13.3 2.7 2.3 -2.3 3.6 0.0 -2.9 -7.1 4.0 2.7 5.7 1.6 -0.2 2.9
%oya, nsa Dec 08 0.1 1.8 5.9 -21.3 2.4 2.1 -3.3 3.4 -1.0 -3.2 -8.1 1.4 2.6 5.6 1.7 -0.6 2.7
Jan 09 0.0 1.7 5.3 -20.4 2.2 2.2 -4.7 3.4 -0.9 -2.6 -9.0 -0.9 2.6 5.5 1.8 -0.5 2.5
Feb 09 0.1 1.7 4.9 -18.7 2.2 -5.4 3.4 -0.3 -2.4 -9.4 -1.9 2.8 5.1 2.0 -0.4 2.7
JPMorgan Chase Bank, New York Michael Feroli (1-212) 834-5523 [e-mail] Abiel Reinhart (1-212) 834-5614 [e-mail]
Economic Research US Weekly Prospects March 13, 2009
Jobless claims (w/e Mar 14)
Released on Thu, Mar 19 at 8:30am
The next jobless claims report will contain initial jobless claims for the March payroll survey weekthe week containing the 12th. If claims remain near their current level, it would be a sign that nonfarm payrolls will probably fall at least as much as in February, when payrolls dropped 651,000. Last week initial jobless claims were 654,000, and in the February payroll survey week they were 631,000.
Initial jobless claims
000s, sa 700 650 600 550 500 450 400 350 300 250
01
03
05
07
09
Continuing jobless claims
000s, sa 5500 5000 4500 4000 3500 3000 2500 2000
01
03
05
07
09
Jobless claims
Jan 24 Initial claims (000s) Weekly change 4-week moving average Weekly change Continuing claims (000s) Weekly change 4-week moving average Weekly change Insured unemployment rate (%) 591 6 543 25 4799 44 4672 47 3.6 Jan 31 631 40 584 40 4820 21 4748 76 3.6 Feb 7 627 -4 609 25 4998 178 4843 95 3.7 Feb 14 631 4 620 12 5120 122 4934 91 3.8 Feb 21 670 39 640 20 5124 4 5016 81 3.8 Feb 28 645 -25 643 4 5317 193 5140 124 4.0 Mar 7 654 9 650 7 Mar 14 650 -4 655 5
Source: US Department of Labor, Employment & Training Administration. 1. Employment survey week.
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JPMorgan Chase Bank Bruce Kasman (1-212) 834-5515
Economic Research US Weekly Prospects March 13, 2009
JPMorgan US forecast
%q/q, saar 2Q08 3Q08 Gross domestic product Real GDP Final sales Domestic Consumer spending Business investment Equipment Structures Residential investment Government Net exports ($bn, chained $2000) Exports (goods and services) Imports (goods and services) Inventories (ch $bn, chained $2000) Contribution to real GDP growth (% pts): Domestic final sales Net exports Inventories Income and profits (NIPA basis) Adjusted corp profits Real disposable personal income 1 Saving rate Prices and labor cost Consumer price index Core Producer price index Core GDP chain-type price index Core PCE deflator S&P/C-S house price index (%oya) Productivity Other indicators 1 Housing starts (mn units, saar) Industrial production, mfg. 1 Capacity utilization, mfg. (%) 1 Light vehicle sales (mn units, saar) 1 Unemployment rate Nominal GDP 1 Current account balance ($bn) % of GDP 1 Federal budget balance ($bn) % of GDP 2.8 4.4 1.3 1.2 2.5 -5.0 18.5 -13.3 3.9 -381 12.3 -7.3 -50.6 1.4 2.9 -1.5 -14.3 10.7 2.5 4.5 2.0 9.9 4.0 1.1 2.2 -15.1 4.7 -0.5 -1.3 -2.2 -3.8 -1.7 -7.5 9.7 -16.1 5.8 -353 3.0 -3.5 -29.6 -2.3 1.1 0.8 -4.7 -8.5 1.3 6.2 2.8 9.7 5.2 3.9 2.4 -16.6 2.2 4Q08 -6.2 -6.4 -5.7 -4.3 -21.0 -28.8 -5.9 -22.2 1.6 -373 -23.6 -16.0 -19.9 -5.9 -0.5 0.2 -35.0 3.4 3.2 -8.3 0.6 -19.1 3.7 0.5 0.8 -18.2 -0.4 1Q09 -5.0 -3.6 -3.2 0.5 -19.6 -20.0 -20.0 -35.0 -0.4 -381 -38.0 -30.0 -61.9 -3.2 -0.4 -1.4 -30.0 7.7 5.0 -1.7 1.2 -2.0 1.0 1.3 1.2 -16.0 -2.0 2Q09 -2.0 -2.5 -1.6 0.5 -15.9 -15.0 -20.0 -15.0 1.8 -407 -20.0 -10.0 -46.3 -1.6 -1.0 0.5 -10.0 1.4 5.2 1.2 1.2 1.0 0.8 1.3 1.0 -14.0 1.0 3Q09 4Q09 1Q10 1.0 1.0 0.2 0.8 0.2 1.5 ...