M Global Economic Review January 2016 UNITED STATES Gross domestic product US real gross domestic product grew 0.7% in the fourth quarter, decelerating from +2.0% in the third quarter. Federal Reserve policy The Federal Open Market Committee (FOMC) maintained its target federal funds rate range of 0.25%-0.50%. The FOMC said that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates, and the housing sector has improved further. However, net exports have been soft and inventory investment has slowed. Inflation has continued to run below the 2% longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Prices and productivity The headline Consumer Price Index (CPI) dipped 0.1% month over month in December; the core CPI (excluding food and energy) rose 0.1%. The Producer Price Index (PPI) ticked down 0.2% in December; the core PPI (excluding food and energy) increased 0.3%. The employment cost index rose 0.6% quarter over quarter in the fourth quarter. Import prices in December declined 1.2% month over month. Housing and construction The National Association of Home Builders housing market index held steady at a downwardly revised 60 in January. Housing starts fell 2.5% in December. Building permits dropped 3.9%. The S&P/Case-Shiller 20-City Index of existing home prices in November rose 0.9% month over month (seasonally adjusted) and 5.8% year over year. According to the Federal Housing Finance Agency s house price index, US home prices in November increased 0.5% month over month and 5.9% year over year. New home sales in December increased 10.8% from an upwardly revised base. Existing home sales climbed 14.7%. Pending home sales ticked up 0.1%. Construction spending dipped 0.4% in November from a downwardly revised base. Consumer Retail sales dipped 0.1% in December from an upwardly revised base. Core/control retail sales (which the Commerce Department uses to estimate consumer spending in the GDP report) fell 0.3%. The Conference Board s Consumer Confidence Index rose to 98.1 in January from a downwardly revised 96.3 in December. Business The Institute for Supply Management (ISM) manufacturing index fell to 48.2 in December from 48.6 in November. Industrial production dipped 0.4% in December from a downwardly revised base. Capacity utilization fell to 76.5% from a downwardly revised 76.9%. Durable goods orders fell 5.1% in December. Core capital goods orders (nondefense capital goods excluding aircraft) fell 4.3%. The ISM nonmanufacturing index edged down to 55.3 in December from 55.9 in November. Wholesale inventories in November dipped 0.3%. Business inventories declined 0.2%.
The Conference Board s index of leading indicators ticked down 0.2% in December from an upwardly revised base. The National Federation of Independent Business s small business optimism index improved to 95.2 in December from 94.8 in November. Employment Nonfarm payrolls increased by 292,000 in December from an upwardly revised base. The unemployment rate held steady at 5.0%. Average hourly earnings were flat month over month and up 2.5% year over year. Trade/currency/commodities The nominal US trade deficit narrowed to $42.4 billion in November from an upwardly revised $44.6 billion in October. The value of the US dollar ticked up against the euro (to $1 = 0.93 at the end of January from $1 = 0.92 at the end of December) and the yen (to $1 = 121.1 at the end of January from $1 = 120.7 at the end of December). The price of West Texas Intermediate crude oil fell to $33.62 per barrel at the end of January from $37.04 per barrel at the end of December. EUROPE/AFRICA Gross domestic product France GDP in France in the fourth quarter advanced 0.2% quarter over quarter (decelerating from +0.3% in the third quarter). Spain GDP in Spain in the fourth quarter expanded 0.8% quarter over quarter, sustaining its third-quarter pace. GDP in the UK in the fourth quarter grew 0.5% quarter over quarter (accelerating from +0.4% in the third quarter). Central bank/fiscal policy Euro area The European Central Bank (ECB) left its key policy rates unchanged. 2 The Central Bank of left its key policy rate unchanged at 11.0%. South Africa The South African Reserve Bank raised its repurchase rate by 50 basis points to 6.75%. The Bank of England s Monetary Policy Committee made no change to its existing asset purchase program ( 375 billion) or official interest rate (0.5%). Prices and productivity Headline inflation in decelerated to 12.9% in December from 15.0% in November (year over year).
Consumer The UK s headline CPI was +0.2% year over year in December. Core CPI (excluding energy, food, alcohol, and tobacco) was up 1.4%. France Consumer confidence in France in December held steady at 96. Retail sales in in December dropped 15.3% year over year. Business Retail sales (excluding auto fuel) in the UK in December fell 0.9% month over month (from a downwardly revised base) but rose 2.1% year over year. Euro area The euro area s composite Purchasing Managers Index (PMI) ticked up to 54.3 in December from 54.2 in November. The manufacturing PMI rose to 53.2 from 52.8, while the services PMI held steady at 54.2. Industrial production in November decreased 0.7% month over month (from an upwardly revised base) but rose 1.1% year over year. France Industrial production in France in November dropped 0.9% month over month. The composite PMI dipped to 50.1 in December from 51.0 in November. The manufacturing PMI advanced to 51.4 from 50.6. Business confidence in January improved to 102 from 101 in December. Germany Industrial production in Germany in November declined 0.3% month over month. The composite PMI moved up to 55.5 in December from 55.2 in November. The manufacturing PMI improved to 53.2 from 52.9. The ifo business climate index edged down to 107.3 in January from 108.6 in December. Italy Industrial production in Italy in November dipped 0.5% month over month. The composite PMI rose to 56.0 in December from 54.3 in November. The manufacturing PMI increased to 55.6 from 54.9. s industrial production in December contracted 4.5% year over year. Spain Industrial production in Spain in November increased 0.1% month over month. The composite PMI declined to 55.2 in December from 56.2 in November. The UK s composite PMI receded to 55.3 in December from a revised 55.7 in November. The manufacturing PMI dropped to 51.9 from a revised 52.5, while the services PMI fell to 55.5 from 55.9. Industrial production in November declined 0.7% month over month. 3
Employment s unemployment rate dipped to 5.7% in December from 5.8% in November (seasonally adjusted). Real average wages fell 10.0% year over year. The UK s unemployment rate dipped to 5.1% in the three-month period ended in November from 5.2% in the three-month period ended in October. Average earnings rose 2.0% year over year. ASIA/PACIFIC Gross domestic product s GDP in the fourth quarter expanded 6.8%, down from +6.9% in the third quarter. South Korea South Korea s GDP in the fourth quarter weakened to 0.6% (quarter over quarter, seasonally adjusted), improving from +1.3% in the third quarter. Taiwan Taiwan s GDP in the fourth quarter contracted 0.3% (year over year). Central bank/fiscal policy s central bank set the rate for the renminbi at 6.5646 to $1 US dollar, its lowest point in almost six years, igniting a selloff in Chinese shares. Officials first halted trading, then suspended the market mechanism, or circuit breaker, that stops trading when losses reach a threshold. The measure, put into effect with the intention of stabilizing stocks, instead intensified investors concerns, as the reversal in the circuit breaker rule raised worries that authorities are improvising as they try to stabilize markets and shore up the economy. The market aftershocks spread to Europe and the United States. The Chinese government has been allowing the value of the currency to decline steadily as a way to bolster the economy. A weaker renminbi helps exporters, a key engine of growth. Indonesia Bank Indonesia cut its benchmark policy rate by 25 basis points to 7.25%. The Bank of unexpectedly cut the rate on current accounts that commercial banks hold with it to -0.1%, and said that it will push the rate even lower if needed. The move means lenders will be charged to keep money with the central bank. Negative rates encourage banks to lend more and consumers to spend rather than save. They can also weaken a country s currency, helping exporters. South Korea The Bank of Korea kept its policy rate at 1.5%. Prices and productivity s CPI in December rose 2.4% month over month (annualized, seasonally adjusted) and 1.6% year over year. The PPI fell 5.8% sequentially and 5.9% year over year. India India s headline CPI increased to 5.6% year over year in December from 5.4% in November. Core CPI (excluding food and fuel) rose to 4.8% year over year from4.7%. 4
Indonesia Indonesia s headline CPI decelerated to 3.4% in December from 4.9% in November (year over year). Core CPI (excluding food and fuel) moderated to 4.0% from 4.8% (year over year). Consumer s core CPI ticked up 0.1% year over year in December. Core core CPI (excluding food and energy) decelerated to +0.8% from +0.9% in November. Australia Nominal retail sales in Australia increased 0.4% in November (month over month). Consumer sentiment declined 3.5% month over month to 97.3 in January. Real retail sales in in December increased 21.7% month over month (seasonally adjusted, annualized) and 10.7% year over year (slowing from November s +11.0% year-over-year reading). Business s retail sales in December fell 0.2% month over month and 1.1% year over year. Real household spending in December decreased 4.4% (year over year); core household spending fell 4.3% (year over year). Consumer confidence ticked up to 42.7 in December from 42.6 in November. Australia The National Australia Bank business confidence survey fell to +3 in December from +5 in November. The PMI retreated to 51.5 in January from 51.9 in December but remained consistent with a modest expansion in activity for a seventh consecutive month (the strongest run since 2010). s official manufacturing PMI dipped to 49.4 in January from 49.7 in December. The official nonmanufacturing PMI dropped to 53.5 from. 54.4. The Caixin composite PMI fell to 49.4 in December from 50.5 in November. The headline services PMI dropped to 50.2 from 51.2, the lowest reading in 17 months. s industrial production in December rose 10.8% month over month (seasonally adjusted, annualized) and 5.9% year over year (down from +6.2% year over year in November). India India s Nikkei Markit composite PMI rose to 51.6 in December from 50.2 in November. The manufacturing PMI declined to 49.1 from 50.3 and the services PMI increased to 53.6 from 50.1. India s industrial production in November fell 4.9% month over month (seasonally adjusted) and 3.2% year over year. Industrial production in in December contracted 1.4% month over month. Core machinery orders (excluding orders for ships and from electric power companies) fell 14.4% month over month in November. The Reuters Tankan manufacturers diffusion index declined to +6 in January from +9 in December. The nonmanufacturers diffusion index increased to +27 from +18. 5
South Korea South Korea s industrial production rose 1.3% (month over month, seasonally adjusted) in December. Employment Trade Australia Australia s unemployment rate held steady at 5.8% in December. Cash wages were flat year over year in November, slowing from +0.7% in October. Basic wages increased 0.5%. Australia Australia s trade deficit narrowed to A$2.9 billion in November from A$3.2 billion in October. Month over month, imports fell 0.6% while exports rose 0.6% (seasonally adjusted). s trade surplus expanded to US$60.1 billion in December from a revised US$53.7 billion in November. Year over year, exports fell 1.4% while imports declined 7.6%. India India s trade deficit widened to US11.7 billion in December from US$9.8 billion in November (not seasonally adjusted). Year over year, exports fell 14.7% while imports dropped 3.9%. Indonesia Indonesia s trade deficit was US$0.2 billion in November, down slightly from a revised US$0.4 billion in October (not seasonally adjusted). Year over year, exports fell 17.7% while imports declined 16.0%. s trade balance improved to a 140.2 billion surplus in December from a revised 381.3 billion deficit in November. Year over year, export volume fell 4.4% while import volume declined 5.0%. South Korea South Korea s trade surplus narrowed to US$5.3 billion in January from US$7.2 billion in December. Year over year, exports declined 18.5%, while imports fell 20.1%. 6 THE AMERICAS Gross domestic product s real GDP in November contracted 0.5% month over month (seasonally adjusted) and 6.1% year over year. Chile Chile s GDP in November dipped 0.5% month over month (seasonally adjusted) and expanded 1.8% year over year. s GDP expanded 2.5% year over year in the fourth quarter, marginally down from +2.6% year over year in the third quarter.
Central bank/fiscal policy/credit ratings s central bank left its Selic policy rate unchanged at 14.25%. Chile Chile s central bank maintained its reference rate at 3.50%. Prices and productivity s headline inflation, as measured by the Índice Nacional de Preços ao Consumidor Amplo (IPCA), in December was 1.0% month over month and 10.7% year over year. Core inflation was 0.8% month over month, 9.1% year over year. Chile Chile s headline CPI was flat month over month in December; core CPI rose 0.2%. Consumer Headline inflation in in December rose 0.4% month over month and 2.1% year over year. Core inflation was up 0.3% month over month and 2.4% year over year. Broad retail sales in in November increased 0.5% month over month (seasonally adjusted). Core/control retail sales (excluding autos and building materials) rose 1.5%. Business Retail sales in in November expanded 0.5% month over month (seasonally adjusted) and 5.7% year over year. Consumer confidence declined 1.1% month over month (seasonally adjusted) in December. Industrial production in November contracted 2.4% month over month (seasonally adjusted) and 12.4% year over year. s industrial production in November increased 0.1% year over year. Business confidence in the manufacturing sector in December improved 0.1 point from a revised base, to 50.2. Employment Trade Chile Chile s unemployment rate fell to 5.8% in the three months ended in December from 6.1% in the three months ended in November. s unemployment rate rose to 4.0% in December 2014 from 3.8% in December 2015. s trade surplus expanded to US$6.2 billion in December 2015 from US$0.3 billion a year ago, as exports fell 4.0% and imports dropped 38.7% (year over year). 7
s trade balance worsened to a US$0.9 billion deficit in December 2015 from a US$0.3 billion surplus in December 2014, driven by deterioration in the oil trade balance. 8 Sources: FactSet, Goldman Sachs, Bloomberg, MarketWatch, The New York Times, The Washington Post, The Wall Street Journal, Reuters, McClatchy, US Department of Commerce, US Treasury Department, Federal Reserve, US Labor Department, US Bureau of Labor Statistics, Institute for Supply Management, National Association of Home Builders/Wells Fargo, Case-Shiller, Standard & Poor s, The Conference Board, National Bureau of Economic Research, Energy Information Administration. The comments, opinions, and estimates contained herein are based on or derived from publicly available information. Investors cannot invest directly in an index. All data included in this economic review were released in January 2016. Information in this review was obtained from sources Jennison believes to be reliable as of the date presented; however, Jennison cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Jennison has no obligation to update any or all such information nor does it make any express or implied warranties or representations as to the completeness or accuracy. This economic review does not purport to provide any legal, tax, or accounting advice. This material is for informational purposes only, does not constitute investment advice, and should not be used as the basis for any investment decision. Further distribution is prohibited without Jennison s consent.