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US: Economy climbed out of recession in Q3

Fri, Oct 30 2009, 08:26 GMT
by KBC Market Research Desk

KBC Bank

After four consecutive quarters of negative growth, the US economy climbed out of recession in the third quarter of 2009. According to the advance estimate, US GDP expanded by an annualized 3.5% Q/Q, while a growth figure of 3.2% Q/Q was forecasted. The breakdown shows that main growth driver was personal consumption (3.4% Q/Q), but positive contributions came also from a slower pace of inventory liquidation, government consumption (2.3% Q/Q) and residential investment (23.4% Q/Q). The surplus was partially offset by negative contributions from net exports and non-residential investment (-2.5% Q/Q). The US economy showed in the third quarter the best growth in two years and while a significant part was due to government incentives (cash for clunkers, first time home buyers tax credit), we find the composition encouraging and expect strong growth in the next few quarters too.

In the week ended October 24, initial claims dropped by 1 000 to a total number of 530 000, while the consensus was looking for an outcome of 525 000. Continuing claims, which are reported with an extra week lag, came out significantly lower than expected. In the week ended October 17, continuing claims dropped by 148 000 to 5 797 000, while only a marginal decline was forecasted. Continuing claims are now at the lowest level since March 21, providing further evidence that companies are cutting fewer jobs.

EMU: EC confidence indicators confirm improvement

The European Commission confidence indicators confirmed the upward surprise in the PMI’s. In October, economic confidence rose from 82.8 to 86.2, while a figure of 84.4 was expected. Looking at the breakdown, both business (-21 from -24) and services (-7 from -9) confidence came out stronger than expected, but also consumer (-18 from -19) and construction (-29 from -30) confidence improved in October. Retail confidence stayed unchanged at -15. The business climate indicator rose from -2.07 to -1.78 in October. These data confirm only the improvement in the PMI’s and IFO providing further evidence that the euro zone economy gathered strength in its recovery.

In Germany, unemployment continued to surprise on the downside of expectations in October. After falling by a revised 15 000 in September, unemployment dropped by 26 000 in October, while the consensus was looking for an increase by 15 000. This is the fourth consecutive decline in German unemployment and in September, the number of people employed rose for the first time since February which might be an encouraging sign. Nevertheless, last month’s figures might be distorted as firms used the subsidized system of short shift workers to avoid lay-offs and figures for short shift workers usually lag the unemployment figures by three months. Also the unemployment rate surprised on the downside of expectations falling from 8.2% to 8.1% while a slight increase was expected.

Other: UK mortgage approvals climb to 18-month high

In the UK, the mortgage approvals rose to the highest level in 18 months. In September, mortgage approvals increased from an upwardly revised 53 000 to 56 200, while an outcome of 53 600 was expected. Consumer credit on the contrary dropped by 262 million, the third consecutive month showing a negative outcome. The final figure of M4 money supply gained 11.6% M/M, while the measure of M4 that the bank uses to assess the effectiveness of so-called quantitative easing fell 0.9% M/M in September.

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Published on  Fri, Oct 30 2009, 13:23 GMT