Q4 GDP was revised up to 4.9% from 3.9% previously. The revision was in line with expectations, as were the deflators that remained basically unchanged at 0.9% for the overall and 1.8% for the core PCE deflator. The story behind the revision was also well flagged in advance: more growth in inventory investment and a positive, big, contribution of net exports. Consumer spending was revised down to 2.7% (from 3% M/M)
Initial claims unexpectedly jumped 23 000 to a high 352 000 in the most recent week, while continuing claims rose 113 000 to 2 665 000, the highest since the passage of the hurricanes Rita and Katrina. In case of the initial claims, the rise might be due to statistical difficulties as the survey week included Thanksgiving (continuing claims are reported with a one-week lag). However, the underlying trend is up too, signalling that labour market conditions are worsening.
October New Home sales rose by 1.7% M/M to an annual 728 000, but only due to a massive downward revision of the September sales to 716 000 from an earlier reported 770 000. Median prices plunged 13% M/M and the mean price 0.3% M/M. That looks awful, but compositional changes (many low priced houses sold) distort the picture. Inventories of unsold houses fell, pushing the months’ supply down to a still high 8.5 from 9 months previously.
EMU: German labour market improves further
In Germany, the November labour market report provided no hard evidence of a slowing economy, as the unemployment continued to fall in November, while employment growth held on to its moderate growth pace in October. Unemployment fell by 53K compared to an expected 30K, while employment rose by 33K in line with the recent monthly average. As a result, the unemployment rate reached a new multi-year low at 8.6%. We wouldn’t however draw many conclusions out of this report, as the labour market is typical lagging indicator in the business cycle.
In the euro zone, the retail PMI fell further below the 50 mark from 48.0 in October to 45.9 in November. The PMI declined both in Germany and Italy, but rose slightly in France. The below 50-levels bode little hope that the consumption growth will pick up in the coming months. This points to further weakening of the euro zone economy, as exports and investment growth will probably slow due to the rise in the euro and the credit crisis.
The November inflation data out of Belgium and Spain underscored the upside risks to the euro zone inflation outlook, as the annual headline CPI increased respectively from 2.24% from 2.94% and from 3.6% to 4.1%. As a result, the euro zone flash CPI for November to be released tomorrow is expected to top the 3% level.
Others: UK lending data point to downside risks housing market
In the UK, the lending data of the Bank of England highlighted the downside risks in the housing market, as both net lending secured on dwellings and the number of mortgage approvals dropped lower in October respectively from GBP 9.5 B to 7.3 B and from 100K to 88K. The number of mortgage approvals is now at lowest level since February 2005. The latter has a rather good leading character for house prices. As such, one may expect house price inflation to moderate further in the months ahead.
Despite the downbeat news on the UK economy, the CBI distributive trades report indicated that retail sales growth continued at a pace in line with the past six months, but nevertheless much slower than in the first half of the year. Especially sales related to the housing market do deteriorate, as the balance for household goods dropped from 32 in October to -14 in November. On the other hand, inflationary pressures are still augmenting as retailers are expected to raise prices at the fastest pace since May 1998. As such, the Bank of England will face the difficult task to balance the downside risks to growth with the upside risks to inflation. However, as interest rates are currently in clear tightening territory, a precautionary rate cut at next week’s meeting may prove warranted.
