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Prospects daily: 28 U.S. consumer confidence up despite European debt troubles

Global Macroeconomics Team's picture

Important developments today:

1.  U.S. consumer confidence picks up in May

2.  No change in U.S. consumer spending in May

3.  Japan’s unemployment rate edges up



U.S. consumer confidence picks up in May. The latest reading of the University of Michigan/Reuters consumer sentiment index showed a better-than-expected increase in confidence among U.S. households in the month. The index increased from 72.2 in April to 73.6, higher than market median estimates of 73.3. Sustained growth in domestic consumer confidence suggests that the stock price slump of early May stemming from the European debt crisis has had a limited effect on households’ perception of U.S. economic prospects.


Source: University of Michigan/Reuters


No change in U.S. consumer spending in May. Following yesterday’s release of revised first-quarter GDP growth for the United States (marked down to 3% from 3.2% in flash estimates (saar)), the Commerce Department reported today that¯ despite a 0.4% gain in personal income in the month¯ consumer spending in April showed no change from March levels. This yielded a 0.5 point pickup in the personal saving rate to 3.6%. One should recall that developments in April come in the wake of the fastest spurt in consumer outlays in some 3 years during the first quarter; and increasing jobs and wage bills may have prompted some consumers to rebuild saving at the expense of spending.

When recent monthly developments are viewed in lower-than monthly frequency terms, some interesting growth aspects come through. Spending continues to advance at a 5% pace in seasonally adjusted annualized rates (3m/3m, saar), a strong performance in any context. And as the PCE deflator continues to ease toward a 1.5% pace, real outlays are now advancing 3.5% or more—a solid contribution to overall GDP growth moving into the second quarter.


Japan’s unemployment rate edges up. Unemployment in Japan unexpectedly increased in April to 5.1% of the labor force, extending the 0.1% increase of March. Whether this pick-up may be attributed to increased labor force participation is unclear at the moment. At the same time, the ratio of job offers to applicants eased to 0.48, posting the first deterioration in 3 months. This returned the average number of available jobs to levels seen in April 2009.


Among emerging markets:

In South Asia, India’s wholesale food inflation eased to 16.23% in the week ending May 15th the first time in three weeks that food inflation has softened, according to the Commerce Ministry.

In Latin America and the Caribbean, Brazil’s IGP-M inflation, the broadest gauge of price changes, picked-up to 1.19% in May (m/m), from 0.77% the previous month¯representing the fastest pace in 22 months. Annual (year-on-year) inflation stood at 4.18%. Unemployment fell to 7.3% in April from 7.6% in March, the National Statistics Agency said. Meanwhile the country posted a nominal budget surplus of 5.3 billion reais ($2.9 billion) in April.

Chile’s industrial output contracted 1.3% year-on-year in April, though less-than expected, after production slumped 17.4% in the previous month. Meanwhile retail sales surged 22% year-on-year; supermarket sales are up 11%, and industrial sales fell 4.8% in April, all measured against the same month in 2009.

In Central and Eastern Europe, Lithuania’s economy contracted 2.8% year-on-year in the first quarter of 2010, with output shrinking a seasonally adjusted 3.9% during the quarter. Industrial production rebounded following 16 months of declines, as exports began to show some strength. Meanwhile, private consumption remains depressed, falling 10% year-on-year, while exports grew 10.9% in the first quarter (y/y) on increased exports of fuels, plastics, and wood. Croatia’s economy contracted 2.5% in the first quarter of 2010 (y/y) the fifth consecutive quarter of decline. This compares with a 4.5% decline in the previous quarter.

In Sub-Saharan Africa, Rwanda’s economy could expand close to 7% in 2010, and accelerate further to 8% in 2011, after growing 6% in 2009. The government is stepping up subsidies to farmers, while the construction sector is making an important contribution to growth. Rwanda remains reliant on donor funds to finance 48% of its budget. Malawi’s central bank kept its key interest rate unchanged at 15% to fight inflationary pressures and help build up reserves. Inflation eased to an annual 8.1% in April on lower food prices.