Research Dept. News
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Monthly Report, num 331 - January 2010
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International review - United States
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The way ahead is a little clearer for the United States
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The United States grows by 2.2% annualized quarter-on-quarter and improves its short-term prospects thanks to private consumption.
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The US is leaving behind the worst recession since 1945. Private consumption has withstood the end to government aid better than expected, the labour market is showing signs of bottoming out and real estate is no longer losing value. Price stability is also reinforcing a more optimistic scenario than the one perceived just two months ago. However, the obstacles to recovery are still the same. Reducing heavy household borrowing will still require higher rates of saving by families, recovery in the labour market will be hindered by the high number of long-term unemployed and housing will continue to suffer from significant over-supply.
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Private consumption is showing signs of strength but consumer expectations are still low.
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The latest demand indicators show that a crucial element in consolidating recovery, namely private consumption, is looking stronger than expected after the end of the «cash for clunkers» scheme. This included aid totalling 3,000 million dollars for the purchase of automobiles and initially lasted from July to November but public demand had already exhausted the budget by the end of August. In such a setting, in November retail sales without automobiles or petrol saw their fourth consecutive month of rises. Car sales also remained lively after a drop in September due to the subsidies ending. The good performance of retail purchases contrasts with the weakness in the Conference Board Consumer Confidence index. In November, this indicator was still immersed in the lethargy of the last few months but with a component of expectations that set a new record low, proving that, although consumption has a solid base, attitudes will be slow and erratic in their recovery to pre-crisis levels.
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Entrepreneurs moderate their optimism but industry picks up in February.
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On the supply side, industrial perception continues optimistic, although less than in previous months. The Institute for Supply Management index for November fell for manufacturing and also services, where pessimistic responses once again outnumbered the optimistic. In both cases, the indices' current levels are coherent with weak economic growth, particularly in services. For its part, industry picked up somewhat in November, with advances both in industrial production and industrial capacity utilization which, at 71.3% of the total, was three percentage points above the record low in June. In spite of November's good figures, industry's recovery is rather precarious, temporarily fed by the need to restock after continual months of reductions.
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Housing is no longer losing value but the over-supply of property will hinder the recovery in construction.
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The housing market continues to confirm that it has bottomed out but recovery is still not firmly established. The biggest difference with the first half of the year is that real estate assets have stopped losing value, leaving behind three years of continual falls. In September, the Case-Shiller price index saw its fourth consecutive month of advances, accumulating a rise of 3.7% since the minimum in May, seasonally adjusted. Recovery is unequal in geographical terms. The area of San Francisco has accumulated a recovery of 10.9% after having lost 45.3%, while New York, which had fallen 20.7%, has not gone above 1.4% and Las Vegas has still to hit bottom. The recovery in the number of homes sold, which in October reached the highest level since February 2007, was boosted by state aid for first home buyers in 2009. However, mortgage foreclosures, which again hit record highs in the third quarter, will continue to feed the over-supply in the sector and will hinder recovery. The good figures for homes started in November does not change this situation as, although the signs are still that it has bottomed out, there has not been any significant upswing on the supply side.
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The labour market might be bottoming out with unemployment at 10%.
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The job market, one of the US economy's weak points, continues close to its lowest point since the end of the Second World War. However, after the good figures for November, it seems about to bottom out. 11,000 jobs were lost in November, a very small figure compared with the losses of the last few months, which might signal the end of the mass destruction of employment with the loss of 7.2 million jobs in its wake. Improvements came in the private sector and were accompanied by upgrades of figures from previous months, underpinning the good performances. The unemployment rate also fell two-tenths of a percentage point to 10.0%. Overall, caution must rule the day. The number of long-term unemployed continued to rise to a record 38.3% of all unemployed, reminding us that recovery in the labour market might still take some time to consolidate.
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Prices remain stable. The CPI gains 1.9% and its underlying component 1.7%.
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Prices continued to play a significant part in the recovery, keeping themselves at a prudent distance from the deflationist abyss without showing, however, any inflationary tendency that would put a spanner in the works of an economy attempting to leave the crisis behind it. During the recession, the sharp fluctuations in oil prices have not been passed on to other business sectors. Consequently, although in November the general consumer price index (CPI) regained up to 1.9% year-on-year due to the base effect of oil, the underlying CPI, the general index without food or energy, repeated its 1.7% rise year-on-year of the previous month, maintaining the stable trend of the last few months. In spite of higher consumption and the persistence of expansionary policies, inflationary tensions are not expected in the short term, although we can't rule out their appearance towards the end of 2010.
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Deterioration in the trade deficit eases off due to fewer oil imports.
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October's trade deficit in goods and services was 32,936 million dollars, around 2,700 million below the balance for September and due almost entirely to fewer oil imports. Excluding oil and its derivates, October's deficit remained above 15,000 million dollars, the highest level since January 2009. However, the relatively weak dollar should help to gradually adjust foreign deficits throughout 2010.
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