2009-04-09 USER

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Karim writes:

View on US EconomySharp drawdown of inventories to lead to restocking to lead to positive contribution to Q2 growth (which will still be negative overall). This has reduced ‘depression’ view in markets. But fact remains that consumer spending (70% of GDP) will remain dire for some time as: labor market remains in tatters, massive household wealth loss from equities/housing, and savings rate continues to climb.

Savings is being fed by the growing deficit spending so that consumption and savings can now be sustained, as some of the recent consumption numbers seem to indicate. So flat consumption (off a low base) and any inventory build (off an extremely low base) has a chance of getting q2 to modestly positive gdp.

Fiscal policy will help.

Yes, adding more than 6% to gdp in q2 from where it would have been other wise.
That’s historically been sufficient to restore gdp to positive territory and fuel the next credit boom.

But with massive output gap (-7% according to CBO last week), economy faces deflationary threat for period ahead (see Fed minutes from yesterday). Fed to keep rates near zero through at least 2010.


  • German industrial production -2.9% in Feb (after -6.1% in Jan) and Italian industrial production -3.5% in Feb
  • Looks like Q1 at least -6 to -7% for European GDP

Yes, they recover only well after we do.

Report today calling for another 25bp cut to 1% in May, plan to announce framework to buy corporates, no clarity if 1% to be the low for o/n money.

ECB also ‘low for long’: Austrian Governor Nowotny today stated he expects inflation to remain below the ECB’s 2% target over the ‘medium term’, giving the bank room to keep rates at historically low levels for ‘some time’.

Other labor markets weakening sharply as well:

  • Chief Economist of Economic and Social Institute (affiliated with Japanese Cabinet Office) stated unemployment in Japan could climb from 3milllion to 5million between July and December this year
  • Canadian employment down 61k in March (was down over 90k prior month) and unemployment rate up from 7.7% to 8.0%
  • Australian employment down 34k in March, with unemployment rate rising from 5.2% to 5.7%
  • Both looking to substantial fiscal support as well.

    Trade Balance (Feb)

    Survey -$36.0B
    Actual -$26.0B
    Prior -$36.0B
    Revised -$36.2B

    Karim writes:

    • Surprise was trade balance improving from -36.bn to -26bn (-44bn to -35bn in real terms)
    • But cause for improvement was 5.1% collapse in imports (not caused by energy); capital goods imports -6%; industrial supplies -9.3%; consumer goods -3.9% and not a sign of a healthy economy

    Right, imports should be picking back up with April numbers which won’t be out for quite a while as the additional fiscal adjustments pile on to the automatic stabilizers which already may have the deficit north of 6$ of gdp annually.


    Exports MoM (Feb)

    Survey n/a
    Actual 1.6%
    Prior -5.9%
    Revised n/a

    Karim writes:

  • Exports up 1.6% after 20% fall in prior 4mths
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    Imports MoM (Feb)

    Survey n/a
    Actual -5.1%
    Prior -6.7%
    Revised n/a


    Exports YoY (Feb)

    Survey n/a
    Actual -16.9%
    Prior -16.5%
    Revised n/a


    Imports YoY (Feb)

    Survey n/a
    Actual -28.8%
    Prior -22.8%
    Revised n/a


    Trade Balance ALLX (Feb)


    Import Price Index MoM (Mar)

    Survey 0.9%
    Actual 0.5%
    Prior -0.2%
    Revised -0.1%

    Karim writes:

  • Import prices up 0.5%, -0.7% ex-petroleum, and -0.6% from China.
  • Yes, any recovery will see crude prices pushing up the inflation indicators, however recent Saudi price cuts may indicate this could be delayed some.


    Import Price Index YoY (Mar)

    Survey -14.7%
    Actual -14.9%
    Prior -12.8%
    Revised -12.7%


    Import Price Index ALLX 1 (Mar)


    Import Price Index ALLX 2 (Mar)


    Initial Jobless Claims (Apr 4)

    Survey 660K
    Actual 654K
    Prior 669K
    Revised 674K

    Karim writes:

  • Initial claims down 20k to 654k from upwardly revised prior week 674k; continuing claims continue to defy gravity, rising another 112k
  • While unemployment will continue to go up until nominal growth exceeds productivity increases, claims should start falling soon.


    Continuing Claims (Mar 28)

    Survey 5800K
    Actual 5840K
    Prior 5728K
    Revised 5745K


    Jobless Claims ALLX (Apr 4)