Sunday, December 11, 2011

US & Chinese Economic Indicators

Last week’s batch of better-than-expected US economic indicators helped to offset the ongoing jitters about the Euro Mess. On Thursday, the Bureau of Labor Statistics reported that initial unemployment claims dropped by 23,000 during the week of December 3 to 381,000, the lowest reading since the last week of February. The four-week average declined to 393,250, the lowest since the first week of April. It is not unusual for jobless claims to plunge during the first few months of an economic recovery, then stall for a while at levels still well above previous cyclical lows, and then move lower again.

The same pattern seems to be happening again. I think it was starting to do so a year ago. However, it was aborted by the Fed’s misguided QE-2.0 policy, which boosted food and fuel prices. Those higher prices flattened consumers’ purchasing power and spending, and also depressed their confidence. So it is encouraging to see that the Consumer Sentiment Index rebounded in mid-December to 67.7 from a recent low of 55.7, which tends to confirm that labor market conditions are improving.

China’s monetary policy is turning stimulative again. That’s the good news, and so is the recent drop in China’s measures of inflation. The bad news is that the People’s Bank of China (PBoC) is easing in response to some weakening in economic activity. On December 5, bank reserve requirements were lowered by 50bps. The CPI inflation rate has plunged from a recent peak of 6.5% y/y during July to 4.2% during November, just about matching the PBoC’s target of 4.0% for the year. The PPI inflation rate plunged from 7.5% during July to 2.7% last month.

Europe accounted for 17.7% of China’s exports during November. Over the past 12 months through November, those exports are up only 5.2% compared to 34.4% last November. On a seasonally adjusted basis, China’s exports to Europe dropped sharply by 7.1% m/m during September and 5.5% during October, but moved up 5.1% during November. China’s total exports edged up to a record high of $2.0 trillion (saar) during November. Industrial production was also at a new high in November. However, it was up “only” 12.4% y/y, the lowest growth rate since August 2009.

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