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Consumer Recovery - Global Economics Weekly

Consumer Recovery?

Global Economics Weekly Brief

Your country needs you! It seems that shoppers may have responded to the battle cry in both the UK and US, raising hopes that the all important consumer may get economic recovery back on track. This is encouraging news, particularly given the importance of consumers to these large economies. Much lower prices seem to be the key to their return, but improving labour markets could be helping too (many part-time jobs).

However, there are lots of headwinds so it’s too early to celebrate yet. Consumers will find it tough as real earnings are still being squeezed, especially as food price inflation seems likely to pick up because of adverse weather in major grain producing countries. More headaches for policymakers, but they’ve known for a long time that it wasn’t going to be easy.

The UK Monetary Policy Committee (MPC) added sterling to its list of concerns. Minutes from Augusts' meeting of the MPC showed members were unanimous in the decision to leave rates and the asset purchase scheme unchanged. The usual worries about Europe and global economic growth were discussed, but the appreciation of sterling was added to the list of concerns. The pound is still 15% lower than in 2007 in trade weighted terms, but it has now climbed 5% above its 2011 average. This is partly because of the UK’s safe haven status, but if it continues it will hinder the export-led recovery craved by UK policymakers.

Good news on UK unemployment. The number of unemployed fell by 46k in Q2 to 2.56 million, bringing the headline rate down from 8.2% in Q1 to 8% in Q2. Self-employment has been a big factor in 2012, accounting for 46% of the growth in jobs. (These self-employed could not find jobs as employees, so decided to go self-employed) But total unemployment is still higher than last year and long term unemployment (over 12 months) has increased to its highest rate since Q3 1997. The fall in unemployment is good news for the UK, but unless economic conditions pick up, employers may begin to reassess their workforce needs. More unemployment on its way, unfortunately.

But not such good news on real earnings. Total pay increased by 1.6%y/y in the three months to June and pay without bonuses increased 1.8%.That’s hard enough for struggling households, but it's worse when inflation is taken into account. Inflation has fallen to 2.8%, but it’s still well above pay growth, which means real wages fell at least 1%y/y in June. It also means that inflation has outstripped earnings growth for 26 consecutive months.

Summertime, and the shopping is (relatively) easy. Despite falling real earnings UK consumers seem to have re-kindled their love of shopping (very low prices). The volume of retail sales rose by 2.8%y/y in July and June’s data were revised up by a whole percentage point to 2.6%y/y. Lower inflation may be the key. The value of retail sales rose just 3.1%y/y, which suggests 'high street' inflation could be as low as 0.3%y/y. So it seems discounting is encouraging shoppers back to the stores. Car fuel rising to its highest price in August 2012. Petrol companies have released their latest profit figures at the highest profit recorded!

US shoppers fall in love again too. After three successive monthly declines, US retail sales rebounded in July. Sales were up 0.8%m/m and 4.1%y/y. It’s not wise to get carried away with one month's data but this is encouraging. Consumers are important to the US economy and this news will raise hopes that they will help the recovery get back on track.

US inflationary pressures are draining fast. Like the UK, very lower prices could be the key to the consumer revival in the US. The Consumer Price Index increased by 1.4%y/y in July and core inflation - which strips out volatile elements like energy and food - was almost smack on the Fed's target at 2.1%. But prices were flat between June and July for the third time in four months. This could give the Fed room to loosen policy in September.

Better news from the US coal face and factory floor. Industrial production increased by 0.5%m/m in July and 4.4%y/y. The detailed figures are consistent with evidence from the Fed that the proportion of industrial capacity being used by firms is almost back to pre-crisis levels. That’s good news for activity, but may have some implications for inflation.

but -
Eurozone economy shrinking as debt crisis rages on. The Eurozone economy shrank 0.2%q/q in Q2 following a stagnant Q1 (0.0%q/q). Once again it was the periphery dragging things down. Spain contracted -0.4%q/q, Italy -0.7% and Portugal -1.2%. The core economies were more resilient. Germany grew 0.3%q/q but deteriorating global (and regional) growth conditions means this pace may not be sustainable. While the Eurozone economy has avoided recession so far, aggregate output has fallen by 0.4% over the past 12 months and forward looking indicators point to a further slowdown in activity.

China in rapid decline! See details below.

Chinese consumer inflation continues to fall. More evidence of weakening domestic demand in China came with the latest inflation data and retail sales data. Consumer prices increased by just 1.7%y/y compared with 2.2%y/y in June and 3% y/y in May. The dip brought the Chinese consumer inflation rate to a 30 month low. Retail sales fell too, but only from 13.7%y/y in May to 13.1%y/y. The good news is that falling inflation leaves the authorities some room to loosen policy and stimulate the economy again.

China Export Growth Collapses as World Recovery Slows
- click on the connection below for comprehensive information.

What are your plans for your future to be successful?

The Credit Crunch of AD 33 Repeats itself time and time again!

What with the Bank of England pushing £375+ billion and the USA Federal Reserve $1+ trillion into their countries respective banking systems, readers may be interested to learn of the following from `Banking & Business in the Roman World`;

In AD 33 the lack of cash continued to become increasingly serious (where have we read this before many times?). To remedy the situation, through the intermediary of `ad hoc` financial offices directed by Senators, the Emperor himself offered interest-free loans amounting to an overall sum of 100,000,000* sesterces from his personal fortune for the duration of three years. The borrowers were required to offer security in the form of real estate or buildings. In this way they were not forced to divest themselves of their patrimony in order to pay off their debts. Fides, that is to say confidence, returned, and the situation was retrieved for a short time.

Why do politicians/bankers/lenders ignore history? and yet history repeats itself several times because these people do not read! People need to read `The Rise and Fall of the Roman Empire` and then perhaps they will learn how to avoid repeating history.

--- --- ---

More Economics and Business Inspiration:
`Accelerate with Impact` -
by Colin Thompson ISBN: 978-1-84549-289-2

Accreditation: UK Registered Learning Provider:10025755

Note: About the Author Colin Thompson

Colin is a former successful Managing Director of Transactional/Print Manufacturing Plants, Print Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives and Non-Executive Director, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM's/Software and over 400 articles published on business and educational subjects worldwide. International Speaker and Visiting University Professor.

Read more newly added articles, which you can add to, on NewsUSA-MyFeedPortal: http://newsusa.myfeedportal.com/i/libor-scandal <--- The Largest Scandal The World has Ever Seen - The LIBOR Scandal.

Colin Thompson
DDL: + 44 (0) 121 244 0306

Mobile: 07831 588310

Main T: + 44 (0) 121 244 1802

email: colin@cavendish-mr.org.uk

Skype: colin.thompson384



Consumer Recovery?!?!

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