September 9, 2016 i l US In July, real personal spending in the US increased by 0.3% month over month and real disposable income ticked up by 0.4% month over month. The personal consumption expenditure (PCE) deflator, which is the Federal Reserve s preferred measurement of the inflation rate, increased by 0.8% year over year in July. The core PCE deflator, which excludes food and energy prices, rose by 1.6% year over year, below the Fed s 2% target. The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index gained 5.1% year over year in June, in line with the consensus estimate. Increasing home prices, housing starts and home sales all pointed to a healthy housing market. The US unemployment rate was unchanged in August, versus an expected drop of 10 basis points. Total nonfarm payroll employment increased by 151,000. The unemployment rate is within the Fed s estimated range of full employment, but the market perceived the job gains as insufficient for an interest rate hike. Europe The UK GfK Consumer Confidence Index rose by five points, to (7), in August, reversing the decline seen since the Brexit vote in June. The increase indicates that British shoppers are shrugging off the Brexit uncertainty. In August, the Consumer Price Index (CPI) in Germany rose by 0.4% year over year and the CPI in France rose by 0.2% year over year. Consumer prices in both countries have remained subdued due to falling energy prices. German retail sales rose by 1.7% month over month in July, above the consensus estimate of 0.5%. Latin America In the second quarter, Brazil s GDP fell by 0.6% quarter over quarter and by 3.8% year over year. The Brazilian economy has been affected by weaker commodity prices and a deteriorating job market. In July, Brazil s unemployment rate continued to rise, hitting 11.6%. Mexico s unemployment rate dipped to 3.8% in July and the labor force participation rate increased to 59.8% from 59.0% the previous month. Employment has been boosted by a shifting of the workforce to lower-productivity jobs in services, which, in turn, has limited real wage growth.
Figure 1. Macro Indicators Country Indicator Period Survey Actual Prior Impact on Consumption US Real PCE (MoM) Jul 0.2% 0.3% 0.4% + US PCE Deflator (YoY) Jul 0.8% 0.8% 0.9% US Core PCE Deflator (YoY) Jul 1.5% 1.6% 1.6% + US S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index (YoY) Jun 5.1% 5.1% 5.3% + US Unemployment Rate Aug 4.8% 4.9% 4.9% US Labor Force Participation Rate Aug 62.8% 62.8% N/A UK GfK Consumer Confidence Index Aug (8) (7) (12) + GE CPI (YoY, Prelim.) Aug 0.5% 0.4% 0.4% FR CPI (YoY, Prelim.) Aug 0.3% 0.2% 0.2% GE Retail Sales (MoM) Jul 0.5% 1.7% (0.6)% + BZ GDP (QoQ) 2Q (0.5)% (0.6)% (0.4)% BZ Unemployment Rate Jul 11.5% 11.6% 11.3% MX Unemployment Rate (SA) Jul % 3.8% 3.9% + Source: US Bureau of Economic Analysis/S&P/Institute for Supply Management/US Bureau of Labor Statistics/GfK/Destatis/INSEE/Instituto Brasileiro de Geografia e Estatística (IBGE)/Instituto Nacional de Estadística y Geografía (INEGI)/Fung Global Retail & Technology In the US, real PCE rose by 0.3% month over month in July and real disposable income rose by 0.4% month over month. US: Healthy Personal Spending and Housing Market; Job Market Tepid In the US, real PCE in July increased by 0.3% month over month. The improvement reflected higher spending on autos, which was partially offset by lower spending on nondurable goods. Real disposable personal income ticked up by 0.4% month over month in July, reflecting increases in wages and salaries and personal current transfer receipts. Figure 2. US: Real PCE (Seasonally Adjusted), MoM % Change; PCE Deflator, YoY % Change 0.8 Real PCE 3.5 PCE Deflator 0.6 2.5 0.4 0.2 0.3 (0.2) (0.4) Jul 13 Jul 14 Jul 15 Jul 16 1.6 1.5 0.5 0.8 Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Core Headline Source: US Bureau of Economic Analysis The core PCE deflator, which excludes food and energy prices, increased by 1.6% year over year in July, missing the Fed s 2% target. The PCE deflator, which is the Federal Reserve s preferred measurement of the inflation rate, ticked up by 0.8% year over year in July. The core PCE deflator, which excludes food and energy prices, increased by 1.6% year over year; the rate was below the Fed s 2% target but above the consensus estimate of 1.5%. The inflation rate indicated by the core PCE deflator was lower than that indicated by the core CPI released two weeks ago which may reduce the odds that the Fed will raise interest rates in September. 2
Gauges of home prices, housing starts and home sales all pointed to a healthy US housing market. The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index showed a year-over-year gain of 5.1% in June, down from 5.3% in May but in line with the consensus estimate. Home prices continued to rise moderately, supported mainly by low mortgage rates. The healthy housing starts and home sales readings also point to a healthy housing market in the US. Figure 3. US: S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index 20 189.9 18 16 14 12 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Source: S&P The US unemployment rate in August was unchanged at 4.9% for the third consecutive month, and was slightly higher than the 4.8% rate that had been expected. Total nonfarm payroll employment increased by 151,000 and the labor force participation rate in August was unchanged from July, at 62.8%. Job gains were seen in professional and technical services, financial activities and healthcare. The mining industry continued to see job losses in August. The unemployment rate is within the Fed s estimated range of full employment, but the weaker-than-expected job market has nudged investors to speculate that the Fed will hold off on a funds rate hike in September. Figure 4. US: Unemployment Rate (Seasonally Adjusted), %; Labor Force Participation Rate (Seasonally Adjusted), % 1 Unemployment Rate 64.5 Labor Force Par^cipa^on Rate 9.0 6 8.0 63.5 7.0 6.0 6 62.5 62.8 4.9 6 61.5 Source: US Bureau of Labor Statistics 3
The UK GfK Consumer Confidence Index rose by five points, to (7), in August, after having declined in the wake of the Brexit vote. The increase suggests that British shoppers are shrugging off the Brexit uncertainty. Europe: UK Consumer Confidence Improved; Low Inflation in Germany and France The UK GfK Consumer Confidence Index rose by five points in August, to (7), after declining recently in the wake of the Brexit vote. The uptick in confidence was driven by a combination of historically low interest rates, falling prices and high employment. The big improvement suggests that British shoppers are shrugging off the Brexit uncertainty. However, the gauge has remained well below its one-year average of (1). Figure 5. UK: GfK Consumer Confidence Index 1 () (7.0) (1) (1) (2) (2) (3) (3) Source: GfK The CPI in Germany and France rose by 0.4% and 0.2% year over year, respectively, in August. Consumer prices in both countries have remained subdued due to falling energy prices. In Germany, the CPI rose by 0.4% year over year in August and was unchanged month over month. The low inflation rate was partly due to declining energy prices, which fell by 5.9% year over year in the month. France s CPI increased by 0.2% year over year in August and by 0.3% month over month. The increase was driven mainly by service prices, but falling prices in energy and manufactured goods served as a drag on inflation. Figure 6. Germany and France: CPI, YoY % Change 2.5 1.5 0.5 0.4 0.2 (0.5) () Germany France Source: Destatis/INSEE 4
German retail sales rose by 1.7% month over month in July, above the consensus estimate of 0.5%. However, the sales figure decreased by 1.5% year over year, as there is one less shopping day in July this year. Figure 7. Germany: Retail Sales, MoM % Change 1.7 () () () () Jul 13 Jul 14 Jul 15 Jul 16 In the second quarter, Brazil s GDP fell by 0.6% quarter over quarter and by 3.8% year over year. The economy has failed to shrug off its recession amid a commodity downturn and a deteriorating job market. Source: Destatis Latin America: Brazil s Economy Faltering; Mexico s Job Market Improved In the second quarter, Brazil s GDP fell by 0.6% from the previous quarter. The decline was steeper than the 0.4% drop in the first quarter and was worse than the expected 0.5% decline. On a year-over-year basis, GDP dropped by 3.8%, which was worse than the 3.7% drop analysts had expected and versus a 5.4% year-over-year decline in the year-ago quarter. The Brazilian economy has been affected by weaker commodity prices and a deteriorating job market. Figure 8. Brazil: GDP (Seasonally Adjusted), QoQ % Change () (0.6) () () 2Q11 2Q12 2Q13 2Q14 2Q15 2Q16 1995 = 100 Source: IBGE 5
Brazil s unemployment rate continued to rise, hitting 11.6% in July, while Mexico s unemployment rate dipped to 3.8%. Brazil s unemployment rate continued to rise, hitting 11.6% in July, up from 11.3% in June. The July figure was higher than the consensus estimate of 11.5%. The deteriorating job market can jeopardize the economy if unemployment fails to stabilize. Mexico s unemployment rate in July dipped to 3.8% from 3.9% in June and was lower than the expected %. The labor force participation rate increased to 59.8% from 59.0% the previous month. The downturn in the energy sector has shifted Mexico s workforce into lower-productivity jobs in services; this explains the improvement in the unemployment rate, but the nature of the job gains is limiting real wage growth. Figure 9. Brazil and Mexico: Unemployment Rate, Seasonally Adjusted (%) Brazil Unemployment Rate 1 11.6 1 1 9.0 8.0 7.0 6.0 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Mexico Unemployment Rate 5.5 4.5 3.5 3.8 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Source: IBGE/INEGI Figure 10. Upcoming Economic Data Releases Date Country/ Period Indicator Region Covered Sep 13 GE CPI (Final) Aug Sep 13 UK CPI Aug Sep 13 GE ZEW Survey Current Situation Sep Sep 13 GE ZEW Survey Expectations Sep Sep 13 BZ Retail Sales Jul Sep 14 FR CPI (Final) Aug Sep 14 UK Jobless Claims Change Aug Sep 14 UK ILO Unemployment Rate (3 Mos.) Jul Sep 15 UK Retail Sales Aug Sep 15 US Initial Jobless Claims Sep 10 Sep 16 US CPI Aug Sep 18 UK Rightmove House Prices Sep Sep 20 US Housing Starts Aug Sep 20 US Building Permits Aug Sep 22 US Initial Jobless Claims Sep 17 Sep 22 US Existing Home Sales Aug Sep 23 FR GDP (Final) 2Q Sep 23 EU Markit Eurozone Manufacturing PMI (Prelim.) Sep Sep 23 MX Retail Sales Jul 6
Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 deborahweinswig@fung1937.com Kiril Popov Senior Analyst Esme Pau Analyst Charlie Poon Research Assistant HONG KONG: 8 th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 4406 LONDON: 242-246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 NEW YORK: 1359 Broadway, 9 th Floor New York, NY 10018 Tel: 646 839 7017 FungGlobalRetailTech.com 7