This week’s main US economic data release will be durable goods orders for April on May 24. The report will shed light on the extent of the auto rebound in the US — and whether it has sustained itself going into Q2.
Economic activity surrounding cars was the saving grace for Q1 GDP, responsible for contributing +1.1% out of total ex-inventory growth of 1.6% (i.e. absent the uptick in economic activity surrounding motor vehicles, final domestic demand would have been much lower).
This was not a one-off: motor vehicles added 0.5% to Q4 2011 GDP as well. The question here is whether or not the break-neck pace of automotive activity can continue.
The arguments “pro” are:
- the US vehicle fleet is aging
- prior to the past two months, the jobs outlook had been improving
- new cars offer many technological advancements such as fuel efficiencies, etc. The argument ‘con’ is essentially that employment data — payrolls, wages, hours worked — have recently softened and are not strong enough to support a major consumption upswing. A non-macro argument would be that improved US cars are winning market share — even if overall industry sales might in the medium run remain flat
We’re expecting cars to make a solid contribution to durable goods orders along with overall strength signalled by the ISM index. The risk factor here is that new orders at Boeing plummeted to a mere four new planes. That represents an over 90% reduction from the previous month, and could undo all of the momentum from new car orders.
Still, we’re anticipating growth of 0.5% on balance. Among the highlights of next week’s UK economic data calendar will be the release of CPI and RPI inflation for April. We expect CPI inflation to decelerate from 3.5% y/y to 3.3%, while RPI inflation is likely to hold steady at 3.6% y/y. Inflation had been on a fairly steep downward trajectory since September, however, that came to an abrupt end last month when the rate ticked back up. We see a moderate further deceleration into mid-year, but beyond that the downtrend is likely to lose momentum. The main drivers of price gains this month are likely to be alcohol, tobacco and transport prices, while a high base effect in air travel costs will provide a drag on the headline print.
Overall, inflation is proving stickier than expected earlier in the year. Part of this is due to the jump in oil prices towards US$125/bbl until mid-March.
Having said that, the drop to around US$110/bbl this week should take some of the heat out of petrol prices going forward. However, this development is unlikely to change the big picture by much. Our view is that CPI inflation will only very briefly dip just below 3% y/y this year.
The array of pre-programmed price hikes such as university tuition fee hikes, sin taxes, mortgage rate increases, etc. should leave inflation persistently above the Bank of England’s 2% target.
Thailand’s economy remains on a recovery path with private consumption and exports supporting the rebound in the first quarter of the year. Reconstruction efforts and fiscal stimulus remain the key drivers to the Thai recovery after last year’s floods. However, this improvement has been uneven across industrial sectors and while some of them have regained their pre-flood levels, others remain subdued. We anticipate that the Thai economy will grow 5.0% y/y in 2012; however, we expect a close-to-zero growth rate in the first quarter of the year after decreasing by 9.0% y/y in the last three months of 2011.