United Kingdom – Last exit before inflation

The rapid improvement of retail sales in February (+1.5%) has to be interpreted with care. The retail sales momentum has deeply changed in recent months. After a strong recovery since the end of 2013, its profile has dramatically changed last fall. Since the peak of October 2016 the  trend is still robust but downside oriented. Households continue to spend as far as inflation is not too high.
In the United Kingdom, inflation is back. The core inflation rate was at 2% in February. Its highest level since June 2014. The interesting point is the food price index trajectory. From the end of 2013 to October 2016, it was decreasing. But since October it recovers rapidly. In October the yearly change for food price was -2.4%, in February it is +0.17%. What is impressive is the upturn since last fall and what is important is the acceleration. This is linked with the sterling depreciation.  Continue reading

3 Graphs on US Retail Sales in September: A Low Momentum

Retail sales were up in September. They increase by 0.6% after a retreat of -0.2% in August and a weak rise (0.1%) in July. On average for the quarter, retail sales are up by 2.9% after 6% during the second quarter. We see the summer change in the graph below. The three measures presented are weaker in July, negative in August and the rise is modest in September
The important measure is the core (in red in the graph above) that is defined as retails sales ex auto, gasoline and building materials. It’s an aggregate that is used to calculate households consumption in national accounts. Continue reading

Gloomy Summer for Growth in the US

After the deep drop in the ISM surveys for August (see here and here) we have had two new important data.
Retail sales were down by -0.3% in August after +0.06% in July and core retail sales were down -0.1% in July AND in August. Therefore carry over growth for Q3 at the end of August was 1.8%% at annual rate (after 6% in Q2) for retail sales and 0.7% for core sales after in Q2. Q2 data were exceptional and not the beginning of a strong trend.
The risk is a low contribution of households’ consumption to GDP quarterly growth. Households’ expenditures were a strong support for GDP in the second quarter. This will probably not be the case for Q3. This means a probable downgrade of growth for 2016. We were at 1.4% for the whole year, it will probably be lower.


After a rebound in July (+0.6%), the industrial production index was down in August (-0.5%). For the manufacturing index data were -0.4% and +0.4% for August and July. Therefore carry over growth for Q3 at the end of August is a modest +2.3% (at annual rate) for the industrial index (after -0.6% in Q2) and for the manufacturing index data were +0.7% and -1% respectively. The momentum is still low. The YoY comparison shows that the industrial index is down by -0.7% and the manufacturing index is up by just 0.1%.

After the ISM, employment it is now retail sales that follow a weak trend while the industrial production index is neutral. Where is the risk of an overheating economy mentioned recently by Eric Rosengren from the Boston Fed. It was a cool summer in the US and the Fed has absolutely no reason to change its monetary policy at its next week meeting

United Kingdom – Households continue to spend

Retail sales were marginally down (-0.17%) in August after a strong improvement in July (+1.86%). Therefore the carry over growth for the third quarter at the end of August is 6% at annual rate.
The first graph shows that the trend that started at the beginning of 2014 is still strong and not broken
The second graph shows that with the strong sales figures in July and August we can expect a large households’ consumption contribution to GDP growth for the third quarter.
Brexit is still not there and consumers take advantage of that (see here why the Brexit has no effect yet on the UK economic situation)


US, Japan UK, France – What to keep in mind on Tuesday

Five points to keep in mind

Minutes of the Federal Reserve
The good thing with the minutes of the last meeting of the Monetary Policy Committee of the Federal Reserve is that you can find what you want to find.
The main sentence to perceive this is the following “Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity. A couple of members preferred also to wait for more evidence that inflation would rise to 2 percent on a sustained basis.Some other members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation.(page 12)”
The first part tells that the FOMC is cautious but the end of the sentence tells that improvement in macrodata could lead to a new strategy.
The Fed is also very attentive to the international context forcing the US central bank to remain cautious “In addition, it was noted that the dollar is a principal reserve currency and that monetary transmission in the United States occurs through funding markets that are quite globally connected.(page 3)Continue reading

The good surprise of the week is in the US

The significant upward revision of retail sales in the US in March and April and the strong increase in May forced to revise the profile of American cycle in Q2.
The data published previously gave the signal of a poor rebound in households’ spending after the low figure for the first quarter (0.6% annualized rate). This figure has been revised upwards to 1% and especially its profile allows a more robust profile and a higher trajectory for the 2nd quarter.
This is shown by the graph below. It represents the 3-month change in retail sales excluding autos, gasoline and building materials. This indicator is used in the construction of consumer goods expenditures by the Bureau of Economic Analysis in the GDP estimates.
The May 2015 figure is now comparable to that of May 2014. Consequently and given the weight of consumption in GDP, Q2 growth expectations will inevitably be revised upwards. This is what the Atlanta Fed has already done, going from 1.1% annualized rate to 1.9% after the publication of retail sales.

Is Japan recovering from the VAT rate hike of April the 1st? Clearly it doesn’t

Is Japan recovering from the VAT rate hike of Avril the 1st? Not really when we look at July numbers on retail sales. (see here for a detailed analysis of Q2 GDP drop). Retail sales are down again in July and the current sales profile is clearly weaker than in 1997 during the previous VAT rate hike: sales were up in July 1997, down in 2014.
In 1997 the rate hike led a to a long recession. With a weaker dynamics the probability of a long recession is clearly above 50%. The drop in households purchasing power continues and in the absence of structural reforms there are no reasons for a rapid upturn. Continue reading