Tuesday was a big day for economic data on both sides of the Atlantic. First we had house price data and a consumer confidence reading from the UK, then we had the UK’s latest GDP estimate, this was followed by consumer price inflation from the Eurozone, and finally we had a rush of US house price data, Chicago PMI and US consumer confidence. So, what does it all mean?
Let’s start with the UK data. The GfK/NOP consumer confidence index rose in line with economists’ expectations to its highest level in over a year—14 months to be exact—to -25 in June from -27 in May. Within this index, almost all of the sub-indices showed a month-on-month improvement as consumers’ confidence in the state of the finances improved. The one sub-index out of five that did not improve was that which measures consumers’ attitudes towards major purchases. This slipped to -26 from -20 previously indicating that individuals may be more optimistic about their accounts overall but they’re not yet willing to risk forking out for something like a new car. Still, it’s clearly a step in the right direction.
House prices next. The Nationwide house price index revealed prices increased by 0.9% in June, their third rise in the last four months, implying that hopes the housing market decline is slowing are not unfounded. The annual rate of decline came in at 9.3% this month—its smallest drop in almost a year—against May’s 11.3% fall.
So, two out of two: so far so good.
Next: the third estimate of UK gross domestic product for the first quarter of 2009. This came in at a contraction of 2.4%, having been revised down from the previous estimate of a 1.9% contraction and markedly worse than economists had feared. Consensus had been for the GDP figure to show the economy shrank 2.1% over the quarter so the drop was clearly a disappointment. Drilling down into the figure, the main culprit seems to have been construction sector output, which was earlier this month revised down to a 6.9% contraction from -2.4% previously estimated. Output from the UK’s services sector was also cut, down to a fall of 1.6% from the former -1.2% forecast, while manufacturing output dropped 5.5% over the first three months of the year.
Ok, so this is clearly bad news, with the economy having shrunk 4.9% since the first quarter of 2008 and the figures showing we’ve been in recession for a year now. But this economic measure is one the lags actual progress, while consumer confidence and the house price index both show the latest developments. Plus, two out of three ain’t all bad: I think I can justify staying cautiously optimistic. And with a shortened trading week in the US and investors getting ready to pack their holiday suitcases, the impact of the GDP revision on the equity market has been limited.
So, let’s take a look further afield. Annual consumer price inflation across the 16 nations that deal in euros fell into the red, according to figures from Eurostat. CPI slipped 0.1% lower this month for the first time in 12 years, having been flat in May. Though this is way below the European Central Bank’s annual target of just less than 2%, the fall was not as sharp as expected as economists had assumed an annual slide of 0.2%. The threat of deflation has been well flagged by economists and the media alike, but government officials have tended to ward off fears that prices will stagnate.
Let’s skip across the pond to the United States. The Standard & Poor’s/Case-Schiller home price data released before Wall Street opened to trade showed prices continued to decline in the year to April 2009 but at a slower pace—not just a slower pace than previously but also at a slower pace than economists had predicted. The 20-City Composite reading revealed prices fell 18.7% in the year to March but this fall slowed to a drop of 18.1% in the 12 months to April whereas consensus was for a minor easing in the pace of decline to -18.6%.
“The stock market bottomed in March and measures of consumer confidence have turned upward, David Blitzer, chairman of Standard & Poor’s Index Committee, said. “This report shows that these better spirits are also appearing in the housing market.”
Of more significance, however, is the US measure of consumer confidence, which after a leap in May was forecast to reveal further improvements in consumer confidence. But just minutes ago the Conference Board reported an unexpected drop in confidence levels to 49.3 in June from May’s downwardly-revised 54.8 (from 54.9 previously), a notable difference from the consensus forecast of an extended rise to 55.1. The US’s weak jobs market was to blame for the surprise fall, with 44.8% of consumers saying jobs are hard to find compared to 43.9% in the previous month and those who think more jobs will come available in the next six months fell to 17.4% from 19.3% in May.
Another key indicator released today was the Institute for Supply Management Chicago’s reading of business activity, which increased to 39.9 in June from 34.9 in May. Anything below 50 represents a contraction in business activity, thus activity is still shrinking but at a lesser pace than previously and also at a lesser pace than expected.
So let’s have a recap: data coming out of the UK confirms suspicions that improvements are under way but still give plenty of cause for concern and caution; data from the eurozone shows the region to now be suffering from deflation but this is likely to be a temporary state of affairs and ECB President Jean-Claude Trichet has indicated he expects inflation to return by the end of the year; and data from the US suggests house price falls are easing, business activity contraction is also easing but consumer confidence has taken a hit after the previous month’s jump, yet this is largely due to perceptions of the labour market.
It seems fair to me to read from this plethora of data that we are far from out of the woods—indeed key indicators continue to surprise on the downside every now and then—but there is a trend towards an easing of the recessionary environment on both sides of the Atlantic that should continue as we move into the second half of 2009.
