More Green Shoots

August 26, 2009

The signs of economic spring are arriving in greater abundance and color, and it’s happening most everywhere.  World trade volume rose in June for the first time in 11 months according to a Dutch think tank.

Real GDP expanded 1.3% at a seasonally adjusted annualize rate (saar) during 2Q09 in both Germany and France.  Euroland’s composite purchasing managers index for both manufacturing and services reached the break-even level of 50.0 in August, up from 47.0 in July and an average reading in 2Q of 43.2.  Industrial orders in the common currency bloc posted their biggest monthly increase in 19 months during June and were 2.5% greater than the March-May average level.  The German business climate index compiled by the prestigious IFO Institutes improved to an 11-month high of 90.5 in August from 87.4 in July.  The forward-looking expectations component was 18 points above its level in February. The Belgian business index, which is a bellwether for Western Europe because of its highly trade-reliant economy, improved 4.6 points in July, the most this year.  Belgium, Sweden The Netherlands, and Denmark reported significantly better consumer confidence in August.  In Britain, mortgage approvals increased to a 17-month high last month, and the volume of retail sales in the U.K. was 1.2% higher (not annualized) in May-July than February-April.

News from the U.S. housing market, where the global financial and economic crisis began and which must show stabilization before an enduring recovery can be possible, has been much better than expected.  Existing and new home sales respectively jumped 7.2% and 9.6% last month, and the Case-Shiller and FHFA house price indices both rose in June.  The Case-Shiller-20 index experienced its first quarterly advance in three years.  The 4.9% leap in U.S. durable goods orders reported today far exceeded expectations and was the best monthly gain in over two years.  North of the border, Canadian wholesale turnover increased for the first time in nine months and posted a third straight advance in volume terms.

Japanese real GDP expanded 3.7% saar last quarter.  Small business sentiment, according to the Shoko Chukin index, surpassed forecasts in August, climbing to 41.8 from 41.1 in July, 34.1 in May, and a first-quarter average score of 26.7.  The hits keep coming elsewhere in Asia where stabilization and then outright recovery first took hold.  GDP last quarter advanced at non-annualized rates of 4.8% in Singapore and 2.3% in South Korea and Thailand.  South Korean consumer confidence has rebounded to a 7-year high.  Australia, it turns out, did not experience a technical recession (consecutive quarters of negative growth), and skilled job vacancies are rising for the first time in over two years.  Australian monetary officials keep repeating the message that Australian growth has been recently better than expected, a clue that suggests they may be one of the earliest rate boosters.

This week the Bank of Israel became the first central bank to tighten credit.  While its rate increase from 0.5% to 0.75% still left policy in a very loose stance and far beneath the prior peak of 4.25%, this bank’s action can arguably be considered the biggest green shoot of all.  One central bank at least isn’t just planning an exit strategy but rather already beginning to implement it.  Officials of the bank convey confidence in global economic prospects to take such a step.  Well, somebody had to be first.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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