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World Economy Review - July 2013

Europe`s factories delivered more signs last month the region is gradually leaving recession behind, according to business surveys that also eased immediate fears over the health of China`s economy. The purchasing managers indexes (PMIs), surveying thousands of manufacturers worldwide, showed output in British factories surged in July, and industrial activity in the eurozone rose for the first time in two years.
US factory activity expanded in July at the fastest pace in two years, fuelled by surges in new orders, production and hiring. The gains show manufacturing is rebounding and should provide a spark to growth in the coming months. The Institute for Supply Management says its index of factory activity jumped to 55.4 in July, up from 50.9 in June. A measure of employment rose to its best level in a year. And a gauge of production soared 11.6 points to 65, the highest point since May 2004.
Overall, the European and Chinese PMIs allayed worries the global economy`s mid-year lull will deepen from here, although that view could hinge on how many jobs the US economy - still the global driver - added last month. We`re seeing different trends in different parts of the world, which are to a large extent offsetting each other, said Andrew Kenningham, senior global economist at Capital Economics in London. The eurozone has clearly improved... over the last six months or so, and the survey data in July was pointing to more or less flat GDP and possibly some growth in the third quarter.
Markit`s UK manufacturing PMI jumped to 54.6 in July from 52.9 in June, trumping even the most optimistic forecast in a Reuters poll of economists and triggering a rise in sterling. Readings above 50 signify growth. Markit`s eurozone manufacturing PMI signalled marginal growth among factories for the first time in two years, also rising to 50.3 in July from 48.8. It follows a string of promising economic data out of the eurozone, which has wallowed in recession since the end of 2011.
Manufacturing output rose again in Germany, Italy, the Netherlands and Ireland during July, while there were welcome returns to growth for France and Austria, said Rob Dobson, senior economist at PMI compiler Markit.
In China, the official government factory PMI was a little stronger than expected in July, offering a rare bright spot in an otherwise sluggish Asian manufacturing sector. Although the China PMI surprised and gave a boost to regional share prices and commodities, it also signaled only a modest pace of growth. A rival report from HSBC was much more gloomy, showing factory activity fell to its lowest in nearly a year. China`s official PMI rose to 50.3 in July, contrary to expectations that it would fall to 49.9 from 50.1 in June. The HSBC PMI, compiled by Markit, fell to 47.7 in July, the weakest reading since August 2012, from 48.2 in June.
Elsewhere in Asia, other PMI reports suggested factory output and new orders falling in July in India, South Korea and Taiwan. In Indonesia, a PMI report signaled that output and new orders were holding at similar levels to June.

Economy of the United States

The U.S. economy grew at a 1.7% annual rate in the second quarter, buoyed by a solid gain in consumer spending and a sharp increase in business investment, the Commerce Department said. Economists polled by MarketWatch had expected growth to total 1.0%. Consumer spending rose 1.8% in the second quarter and business investment jumped 9%, led by another double-digit percentage gain in home construction. Those increases offset a 9.5% spike in imports - a negative for U.S. growth - and a 1.5% drop in federal spending. Inflation as measured by the PCE index was flat overall and rose just 0.8% on a core basis excluding food and energy. The core increase was the smallest in almost three years. Growth in the first quarter, meanwhile, was revised down to 1.1% from 1.8% as part of the government`s periodic update to how it measures the size of the economy and how fast it`s growing. Yet the new methodology also shows that the U.S. expanded at a 2.8% pace in 2012 instead of 2.2% as originally reported. Most of the historical data on the U.S. economy, however, was little changed. The second-quarter GDP report will be refined through two further updates in the next few months.
U.S. industrial production increased 0.3 percent in June after being unchanged in May. For the second quarter as a whole, industrial production moved up at an annual rate of 0.6 percent, the Federal Reserve said. Production from mines advanced 0.8 percent, double its rate of increase in May. For the second quarter, mining output rose at an annual rate of 4.9 percent after having fallen 0.7 percent in the first quarter. In June, the capacity utilization rate for mining increased 0.3 percentage point to 87.9 percent, a rate 0.6 percentage point above its long-run average.
Manufacturing production rose 0.3 percent following an increase of 0.2 percent in May. The output at mines advanced 0.8 percent in June, while the output of utilities decreased 0.1 percent. At 99.1 percent of its 2007 average, total industrial production was 2.0 percent above its year-earlier level.
The rate of capacity utilization for all industries edged up 0.1 percentage point to 77.8 percent, a rate that was 0.1 percentage point above its level of a year earlier but 2.4 percentage points below its long-run (19722012) average.
The monthly U.S. trade deficit widened to $45 billion in May, as imports rose to their second-highest level on record. The increase in demand for foreign goods and services was another sign of growing momentum in the country`s economic recovery. The gap in May grew by a hefty 12.1 percent compared to the $40.1 billion deficit recorded in April. It also exceeded the $40.1 billion deficit forecasted by economists surveyed by Bloomberg before Wednesday`s announcement. May`s wider deficit was mainly due to burgeoning U.S. imports of goods and services.
Total imports increased to $232.1 billion in May from $227.7 billion in April. That stronger volume, second only to the record $234.3 billion of imports recorded in March 2012, was largely due to a $4 billion-dollar jump in the country`s consumption of foreign goods -- a sign that American consumers are opening their wallets. On the flipside, U.S. exports of goods and services shrunk slightly to $187.1 billion in May from $187.6 billion in April. Dropoffs in exports of consumer goods and industrial supplies were the main cause of this decrease.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.
The gasoline index rose sharply in June and accounted for about two thirds of the seasonally adjusted all items change. Other energy indexes were mixed, with the electricity index rising, but the indexes for natural gas and fuel oil declining. The food index increased in June as the index for food at home turned up after declining in May.
The index for all items less food and energy increased 0.2 percent in June, the same increase as in May. Advances in the indexes for shelter, medical care, and apparel accounted for most of the rise, with increases in the indexes for new vehicles and household furnishings and operations also contributing. The indexes for airline fares, used cars and trucks, and recreation all declined in June.
The all items index increased 1.8 percent over the last 12 months, an increase from last month`s 1.4 percent figure. The index for all items less food and energy has risen 1.6 percent over the last year, the smallest 12-month change since June 2011. The energy index has risen 3.2 percent over the span, and the food index has increased 1.4 percent.
Total nonfarm payroll employment increased by 162,000 in July, and the unemployment rate edged down to 7.4 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade, food services and drinking places, financial activities, and wholesale trade.
Both the number of unemployed persons, at 11.5 million, and the unemployment rate, at 7.4 percent, edged down in July. Over the year, these measures were down by 1.2 million and 0.8 percentage point, respectively. Among the major worker groups, the unemployment rates for adult women (6.5 percent) and blacks (12.6 percent) declined in July. The rates for adult men (7.0 percent), teenagers (23.7 percent), whites (6.6 percent), and Hispanics (9.4 percent) showed little or no change. The jobless rate for Asians was 5.7 percent (not seasonally adjusted), little changed from a year earlier.

Economy of the European Union

In May 2013 compared with April 2013, seasonally adjusted industrial production fell by 0.3% in the euro area (EA17) and by 0.6% in the EU27, according to estimates released by Eurostat, the statistical office of the European Union. In April production increased by 0.5% and 0.3% respectively. In May 2013 compared with May 2012, industrial production decreased by 1.3% in the euro area and by 1.6% in the EU27.
In May 2013 compared with April 2013, production of durable consumer goods dropped by 2.3% in the euro area and by 2.1% in the EU27. Capital goods decreased by 1.5% and 1.9% respectively. Energy rose by 0.1% in the euro area and fell by 0.3% in the EU27. Intermediate goods grew by 0.4% and 0.2% respectively. Non-durable consumer goods increased by 0.6% in the euro area and fell by 0.1% in the EU27. Among the Member States for which data are available, industrial production fell in thirteen, rose in nine and remained stable in the United Kingdom. The largest decreases were registered in Romania (-10.7%), Lithuania (-6.3%) and Sweden (-3.8%), and the highest increases in Portugal (+6.1%), Latvia (+2.2%) and Estonia (+2.0%).
In May 2013 compared with May 2012, production of durable consumer goods dropped by 6.2% in the euro area and by 5.1% in the EU27. In both zones, intermediate goods decreased by 2.6% and capital goods by 0.9%. Energy rose by 0.2% in the euro area, but fell by 1.9% in the EU27. Non-durable consumer goods increased by 0.1% in the euro area and decreased by 0.7% in the EU27. Among the Member States for which data are available, industrial production fell in sixteen and rose in seven. The largest decreases were registered in Ireland and Sweden (both -7.7%), Bulgaria (-6.0%) and Finland (-5.3%), and the highest increases in Lithuania (+21.6%), Estonia (+6.3%) and Portugal (+4.5%).
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in May 2013 gave a 15.2 billion euro surplus, compared with +6.6 bn in May 2012. The April 20132 balance was +14.1 bn, compared with +3.3 bn in April 2012. In May 2013 compared with April 2013, seasonally adjusted exports fell by 2.3% and imports by 2.2%. These data3 are released by Eurostat, the statistical office of the European Union.
The first estimate for the May 2013 extra-EU27 trade balance was a 15.8 bn euro surplus, compared with -4.9 bn in May 2012. In April 20132 the balance was +8.8 bn, compared with -13.4 bn in April 2012. In May 2013 compared with April 2013, seasonally adjusted exports fell by 1.5% and imports by 2.1%.
Euro area annual inflation is expected to be 1.6% in July 2013, stable compared with June, according to a flash estimate from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in July (3.5% compared with 3.2% in June), followed by energy (1.6%, stable compared with June), services (1.4%, stable compared with June), and non-energy industrial goods (0.4% compared with 0.7% in June).
The euro area (EA17) seasonally-adjusted unemployment rate was 12.1% in June 2013, stable compared with May. The EU27 unemployment rate was 10.9%, down from 11.0% in May. In both zones, rates have risen compared with June 2012, when they were 11.4% and 10.5% respectively. These figures are published by Eurostat, the statistical office of the European Union.
Eurostat estimates that 26.424 million men and women in the EU27, of whom 19.266 million were in the euro area, were unemployed in June 2013. Compared with May 2013, the number of persons unemployed decreased by 32 000 in the EU27 and by 24 000 in the euro area. Compared with June 2012, unemployment rose by 1.080 million in the EU27 and by 1.129 million in the euro area.

Economy of Japan

Japan`s industrial production took an unexpectedly sharp drop in June, falling a seasonally adjusted 3.3% from May, though manufacturers offered an upbeat outlook for the current month, the Ministry of Economy, Trade and Industry reported Tuesday. The decrease in output, swinging from a revised 1.9% gain in May, trailed expectations for a 1.7% drop, according to a Dow Jones Newswires survey. A fall in production of transport equipment, including autos, led the decline, followed by electronics and machinery, the ministry said. However, a survey of manufacturers raised their forecast for July`s industrial production to a rapid gain of 6.5%, up from 3.3% projected in last month`s survey. In May, the survey -- produced by the ministry -- had tipped output to fall 2.4% in June.
Japan racked up its largest-ever trade deficit for the first six months of the year as the economic policies of Prime Minister Shinzo Abe helped raise demand for imported consumer goods but have so far failed to give a boost to exports. The world`s third-largest economy logged a 4.8 trillion ($48 billion) deficit for the period, 66.1% wider than a year before, data from the Ministry of Finance showed. A large part of the problem can be seen in the sharply lower value of the yen. Even though the currency`s fall should eventually help boost exports as Japanese goods become more competitive overseas, it also immediately raises the price of imports.
For the month of June, Japan`s trade deficit came to 180.8 billion, extending its streak of monthly shortfalls to a year. The result undershot a 155.7 billion deficit expected by economists polled by the Nikkei and Dow Jones Newswires. Japan recorded a trade surplus of 56 billion in the same month of the previous year. In June, exports rose 7.4% on year, compared with a 12% increase expected by economists. Exports grew in all key markets, with shipments to the U.S., Japan`s largest market for exports, rising a strong 14.6%. There was also a 4.8% increase in exports to China, despite slowing growth there. Overall imports, however, were up 11.8% from a year ago.
Japan`s core consumer prices turned positive and rose 0.4 percent in June from a year earlier, marking the fastest pace of increase in nearly five years, data showed, suggesting the government`s efforts to eradicate years of deflation are bearing fruit. The rise in the core consumer price index, which includes oil products but excludes volatile prices of fresh food, compared with economists` median forecast for a 0.3 percent increase, the data from the Ministry of Internal Affairs and Communications showed. It followed a flat reading in May.
The unemployment rate in Japan was a seasonally adjusted 3.9 percent in June, the Ministry of Internal Affairs and Communications said. That beat forecasts for 4.0 percent after showing 4.1 percent in May. The job-to-applicant ratio was 0.92 percent, also topping expectations for 0.91 percent and up from 0.90 percent in the previous month. The number of employed persons in June was 63.33 million, an increase of 290,000 or 0.5 percent on year.

Economy of Russia

Russia`s economy expanded at a slower pace than expected in the second quarter, increasing the likelihood that the country will grow at well under 3 per cent this year. Gross domestic product rose at an annual rate of 1.9 per cent between April and June, Andrei Klepach, the deputy economy minister, said, bringing GDP growth for the first half to 1.7 per cent after a particularly weak start to the year.
Analysts blamed the low growth on a slowdown in investment, which accounts for about a fifth of Russia`s GDP, as well as weak external demand from key export markets such as the EU. At present, analysts forecast the economy to grow at 2.8 per cent for 2013. Analysts expect growth to pick up significantly in the second half of the year, partially thanks to a weak comparative period in 2012, as well as expectations of a strong harvest.
Russian industrial production rose 0.1% in June compared with a year earlier after contracting by 1.4% in May, data from the Federal Statistics Service showed. In monthly terms, production increased by 0.9% in June. In the first six months of 2013 production grew by 0.1% in annual terms compared with a rise of 3.1% in the same period a year ago.
The mining sector expanded by 3.1% on the year in June, becoming the main driver for the industrial output index. Production in the manufacturing sector fell 1.2% on the year while the utility sector production declined by 0.8%. Weak industrial production activity poses risks for Russia`s economy growth, which is projected at 2.4% for this year but could be slashed to below 2%, as envisaged by the economy ministry`s growth scenarios.
Russia`s consumer inflation slowed to 6.5% in July from 6.9% in June, according to the economy ministry. Inflation is set to slow further thanks to a sound harvest, hitting the central bank`s target range of between 5% and 6% near the end of the year. - 04.08.2013 15:21