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Prospects daily: U.S. industrial production, consumer spending and inventories all grow in April

Global Macroeconomics Team's picture

Important developments today:

1. U.S. indicators upbeat in April

2. Russia's GDP grows 2.9% in the first quarter


U.S. retail sales gain for seventh consecutive month. Purchases at retail outlets climbed 0.5% (m/m) in April, posting a seventh straight month of gains at the retail level. Rising demand for building supplies, which increased a stunning 6.9% (m/m), led sales in the month, while auto sales increased 0.5% (m/m) counter to median expectations of a decrease in automobile demand. Retail turnover was slower in April compared with the upwardly revised 2.3% (m/m) swing posted in March, due to seasonal effects of the floating Easter holiday, which occurred in the first week of April this year. The pace of growth in sales was weak over the winter months, but momentum remains strong, showing growth of 9.8% in April (saar) up from average growth of 7.6% in the previous two quarters. Further gains in retail spending are likely in the coming months and quarters, particularly should the economy continue to add jobs at the heftier pace seen in the previous two months.


Source: Department of Commerce

In related news, U.S. consumer sentiment increased in early May. First readings for consumer confidence in May, compiled from survey returns by Reuters/University of Michigan, showed a modest pickup from 72.2 in April to 73.3 in the month, largely on the back of household’s sense of improved economic conditions. Job markets are clearly coming to stabilize and potentially turn upward; at the same time expectations for 1-year inflation (3.1%) are the highest that they have been since June 2009. The index of economic expectations jumped to 84 from 80 in April, a favorable reading for household spending in coming months.

U.S. production underpinned by business equipment in April. Industrial output grew by 0.8% (m/m) in April, the strongest pace of monthly growth since August 2009, following sluggish growth of 0.01% for the previous two months. Output at factories and in the mining sector rose by 1% and 1.4% respectively, while production at utilities fell 1.3% as the weather turned warmer across the country. Gains in manufacturing were led by a 1% (m/m) increase in business equipment, including computers and electronic appliances, indicative of increased business capital goods procurement. Output of consumer goods was up by a softer 0.2% in April, while production of motor vehicles and parts declined 2.2% from last month.

Capacity utilization inched up for a tenth month to 73.7% (from 73.1 in March), returning close to the level of utilization seen in November 2008--just as the financial crisis was getting under way. Industrial production’ momentum weakened from 8.5% and 7.7% in the previous two quarters (saar) to 5.2% in April, as a result of weak outturns for February and March. But with increasing consumer demand for manufactured goods¯both domestically and from abroad¯growth is likely to pick up to a stronger pace over the summer months.

U.S. business inventories up in March as sales surge. In line with today’s favorable news on retail sales and industrial production for April, replenishment of U.S. business stocks is moving quickly, with March experiencing a second monthly gain of 0.5%. This is occurring as business sales increased by 2.3% in March, the most since November 2009. A record drawdown in inventories during the recession of 2009, as weaker sales volumes were met wholly from exiting inventories, is coming to an effective end, as new orders, production, and stocks are being spurred by signs of renewed domestic demand growth. External demand for U.S. products is also firm, with continued import growth in East Asia; but a question mark now hangs over Europe, and the dampening effects on expectations and growth stemming from Greece’s financial package.

“The period of massive inventory liquidation has given way to a period of moderate inventory accumulation”, notes Steven Wood of Insight Economics in Danville, California. Companies had 1.24 months of supply on had in March, down from last month’s 1.27; this reading matched the lowest in records dating back to 1992. So there is much leeway to improve inventory sales ratios in coming months and quarters.


Among emerging markets:

In East Asia and the Pacific, Hong Kong’s (China, SAR) GDP expanded 8.3% year-on-year in the first quarter of 2010, up from revised 2.5% growth in the fourth quarter (y/y), with output driven by exports, retail spending and tourism. This marks the fastest growth for the economy in four years.

In South Asia, India’s wholesale prices gained 9.59% in April (y/y) a marginal easing from 9.90% recorded the previous month, according to the Commerce Ministry.

In Central and Eastern Europe and the CIS, Russia’s GDP gained 2.9% in the first quarter of 2010 (y/y), the first positive advance since 2008, bolstered by an oil-funded stimulus program and record-low borrowing costs. This comes on the heels of a 3.8% contraction in the fourth quarter of 2009.