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US: Q3 GDP at −0.3%, but underlying picture definitely worse

Fri, Oct 31 2008, 08:33 GMT
by KBC Market Research Desk

KBC Bank

In the third quarter, GDP contracted by 0.3% (up 0.8% Y/Y) according to the BEA advance report, compared to the consensus estimate of -0.5%. Looking at the details, personal consumption contracted by 3.1% (from +1.2%) as the tax rebate checks were already spend a long time ago. Private investment dropped by 1.9% (from -11.5%) as non-residential investment fell by 1.0% and residential investment deteriorated further, dropping 19.1% (from -13.3%). These very weak figures were partially mitigated by a rise of 5.8% (from 3.9%) in government consumption, a slower pace of inventory liquidation and an improvement in net export deficit. After a strong second quarter GDP figure (2.8%), third quarter GDP showed a 0.3% contraction in economic activity and GDP is expected to drop further in the fourth quarter of 2008 and probably also in the first half of 2009 as the headline figure was sharply mitigated by government consumption, net exports and inventories.

In the week ended October 25, initial claims stayed unchanged, while the previous figure was upwardly revised from 478 000 to 479 000. The consensus was looking for a small drop (to 475 000). Continuing claims, which are reported with a oneweek lag, fell 12 000 from an upwardly revised 3 727 000 to 3 715 000, while an outcome of 3 735 000 was expected.

EMU:Economic confidence at lowest level since 1993

The European Commission economic confidence index showed its biggest monthly drop since the series began in 1985. The headline index fell from a downwardly revised 87.5 to 80.4, while the consensus was looking for an outcome of 86.0. Looking at the details, all sub-indices worsened significantly: consumer confidence (- 24 from -19), business confidence (-18 from -12), services confidence (-6 from 0), retail confidence (-13 from -8) and construction confidence (-20 from -16). These very weak confidence indicators confirm the sharp plunge in PMI surveys which indicated that the euro zone economy has probably entered a recession. Also the EU business climate indicator showed a sharp decline (-1.34 from -0.82), coming out at its lowest level since 1996.

In Germany, the number of people unemployed fell 26 000, while the consensus was looking for a more modest decline of 10 000. The previous figure was revised from -29 000 to -28 000. The number of jobs created declined from 36 000 in August to 20 000 in September, but the number of vacancies stabilized at 572K in October and the unemployment rate fell from 7.6% to 7.5%. As such the labour market keeps up rather well, but it should be kept in mind that labour market data are a typical lagging indicator and hence a weakening can be expected in the coming months.

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Published on  Fri, Oct 31 2008, 08:44 GMT