Monday, 26 October 2009

United States

United States – Productivity in Q2 jumped 6.4%, surpassing the consensus estimate of 5.5%. Unit labor costs diminished 5.8% while hourly compensation climbed 0.2%.

The U.S. trade deficit rose from $26.0 billion to $27.0 billion in June, short of the consensus estimate of $28.7 billion. The swell was due to a $3.9-billion increase in the petroleum deficit, driven by higher oil prices. The deficit excluding petroleum retreated from $12.7 billion to $9.8 billion, an 11-year low.

The FOMC kept its target range for the Fed funds rate unchanged this week at 0% to 0.25%. The Fed clarified its plans for the Fed Treasury purchases: Only the $300 billion previously committed will be spent and the program will expire by the end of October. In our opinion, the target range will need to be adjusted upward, possibly by yearend, for the sake of the Fed’s balance sheet.

U.S. retail sales flagged 0.1% in July, for a first setback in three months. However, the underlying trend is not as bad as this might suggest. Sales excluding gas stations and grocery stores, a better indicator of consumer discretionary spending, were actually up 0.2% for a third monthly increase in a row.

U.S. headline CPI was flat in July while core CPI rose 0.1%. Year-over-year headline CPI slipped to -2.1% from - 1.4% while core inflation slowed to 1.5% from 1.7% a month earlier. However, the year-over-year headline CPI has now probably reached its trough: Price momentum has shifted upward, as evidenced by the annualized 6-month rate of change back in positive territory.

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