In the fourth quarter of 2008, GDP contracted by 3.8% on an annualized basis, according to the BEA advance report, while the consensus was looking for an outcome of -5.5%. Looking at the details, personal consumption dropped by 3.5% (from -3.8%), which is in line with the consensus estimate. A large negative contribution came from private investment (-12.3% from 0.4%) as both non-residential (-19.1% from -1.7%) and residential (-23.6% from 16.0%) investment declined sharply. The net export deficit widened from -$353.1 to -$356.4. The very weak figures were mitigated by a positive contribution from government consumption (1.9%) and more important, change in inventories ($6.2B from -$29.6B). Although the headline figure came out better than expected, the details are extremely weak with a sharp plunge in private investments and fragile personal consumption. Most of the mitigating effect came from rising inventories, which should be reduced in the coming quarters and will then put a drag on growth.
The Chicago PMI showed another picture than the earlier released regional business confidence indicators. The headline index dropped from an upwardly revised 35.1 to 33.3 in January. Both production (29.7 from 32.4) and new orders (30.7 from 31.5) declined further, while supplier deliveries (51.9 from 50.1) improved. The labour market situation deteriorated after rebounding in December and inventories dropped slightly. Prices came out higher after falling sharply in the month before. Nevertheless, we still expect to see a slight recovery in manufacturing ISM after the other regional business confidence indicators surprised on the upside.
The final figure of University of Michigan consumer confidence came out slightly lower than the first estimate. The headline figure was downwardly revised from 61.9 to 61.2 driven by a downward revision in economic conditions, while the economic outlook was somewhat upwardly revised. Compared to the December figure, consumer confidence rose from 60.1 to 61.2.
EMU: Inflation continues its sharp decline in January
In January, euro zone HICP inflation plunged from 1.6% Y/Y to 1.1% Y/Y, after falling below the ECB medium-term price stability target of 2.0% Y/Y in December. This is clearly below the consensus estimate of 1.4% Y/Y and indicates that euro zone inflation is falling more rapidly than previously thought. In the coming months, inflation is expected to continue its downward trend and might even fall below zero for a short period of time.
