This week we look at the recent trade data out of the US and China, then we look at developments in the US inflation situation and what implications it may have. We also review the inflation situation in the EU before reviewing the US consumer sentiment numbers.
1. China Trade Data
First up is the September trade data from China, imports hit a record high at $128.1 billion (24.1% y/y), and exports of $144.9 billion (25.1% y/y) leaving a trade surplus of $16.9 billion. The September quarter also saw trade rising on a quarterly basis with both exports, imports, and the trade surplus rising vs the June quarter; also both exports and imports hit a quarterly record high. The rise in imports is perhaps one of the most interesting aspects in terms of China's role in the global economy. But of course the part getting much of the attention is the trade surplus...
2. US Trade Data
The other big trade data out this week was from the US; the August trade deficit ballooned out to -$46.3 billion, above consensus -$44.3 billion, and July's -$42.8 billion. This time the drivers of the expansion in the deficit were not just from petroleum goods, the nonpetroleum deficit grew to $35.9 billion from $33.2 billion - signaling a cyclical normalisation of the the US trade deficit. The point is that the US trade balance started to head towards zero because of cyclical factors, but it will need to be driven by structural factors if the US is ever going to see a positive trade balance.
3. US Inflation Situation
Also from the US this week was inflation data, which showed a considerably subdued inflation situation in the US. Month on month headline CPI rose 0.1%, and was unchanged on a core basis. Year on year the headline rate reduced from 1.2% to 1.1%, and the core rate fell to 0.8% from 1.0%. However looking at the chart below the ISM prices sub-indexes from both the PMI and NMI show a relatively mixed story - it says that businesses are reporting paying higher prices, which means either an eventual pick up in inflation or margin compression.
4. Euro Zone Inflation Situation
In Europe inflation increased in August, with the headline rate rising to 1.8% from 1.6% in July, but core staying flat at 1%. The main drivers were transport, alcohol & tobacco, and housing. Of course the usual extremes were seen with Ireland facing deflation of -1.0%, followed by Latvia with a 0.3% annual rate; while at the other end were Greece with 5.7% and Romania at 7.7%. Thus at least on a headline basis inflation is by no means gone in the EU, but the message of a fragile, gradual, and uneven recovery for the EU remains.
5. Reuters/University of Michigan Consumer Sentiment
Finally, the US Consumer Sentiment index slipped slightly to 67.9 from 68.2 in August, and below consensus 69. The future expectations index fell to 60.9 form 62.9 previous, and the current conditions index rose to 79.6 from 78.3 previously; showing that consumers are slightly happier about things now and slightly less optimistic about the future. Much of the uncertainty is driven by delays on decisions around tax cuts, but also the general uncertainty that accompanies such recovery as the one we're seeing... and of course all the talk about QE2 (which is really an implicit admission by the fed that things are not looking good) will hardly help.
So we saw China producing record trade results in the September quarter, with the trade balance rising and also raising eyebrows, but of course the continued rise in imports is one of the most interesting features. On the other side of the coin, the US is seeing a cyclical reversal of the ground it made in reducing its trade deficit - the message is that the US will continue to see trade deficits until structural forces drive change.
On the inflation front the US September results showed an exceedingly subdued trend in inflation, but the price indexes in the PMI indexes suggested that the string of disinflation could be temporary (but much will depend on the course of the recovery). Over in the EU the inflation picture was a bit different, with headline rates moving up (but core remaining flat) as the fragile, gradual, and uneven recovery unfolds.
Back to the US, the consumer sentiment figures showed a mixed situation for consumers as uncertainty related to the strength or otherwise of the economic recovery weighs in (in spite of a relatively healthy retail sales figure). So it will be interesting to see if the Fed effectively throws in the towel with another round of quantitative easing. Watch this space!
1. China Customs www.customs.gov.cn
2. Bureau of Economic Analysis www.bea.gov
3. Bureau of Labour Statistics www.bls.gov & Institute for Supply Management www.ism.ws
4. Eurostat epp.eurostat.ec.europa.eu
5. Reuters/Univesity of Michigan customers.reuters.com