Economic Data Points 02.12.10

Economic headlines

· US retail sales - After a disappointing December for retailers, consumers came back strong in January, as the headline (+0.5%), ex-auto (+0.6%) and core, ex-auto, gas and building material (+0.8%) categories all came in better than expected. The three-month annualized run rate on core retail sales is now a solid 5.6% and is running broadly in line with recent trends in nominal labor income. Outside of the housing-related furniture and building materials categories, most other types of retailers reported increases on the month. Feroli.

· The University of Michigan consumer sentiment index edged down to 73.7 in the preliminary February survey from 74.4 in January. The fall in sentiment is not too surprising given the drop in equity prices around the sample period. Despite the slight fall in sentiment in February, it appears that the Michigan index is on a very gentle upward trend, with the three-month average increasing to its highest level since February 2008. A Reinhart.

· Euro area GDP soft in fourth quarter; some downward revisions looking forward - The flash GDP report for the fourth quarter was soft, up 0.1% not annualised (0.4% annualised). The Euro area looks to have exited recession last summer, but the first six months of the recovery have been extremely lackluster. The weakness in the fourth quarter was broad based across the region, with the exception of France. German GDP stagnated, Italian and Spanish GDP contracted, and Dutch GDP increased at a meagre 1%ar. The only exception was France which saw a solid 2.4%ar gain. For this year as a whole, we now expect GDP growth to average 2.2%ar, down from our previous forecast of 2.4%ar. This is still an above-potential pace; we would put potential growth at around 1.25%ar. D Mackie

· China – the PBOC raises Reserve Requirement Ratio (RRR) by 50bp as of 2/25, the second such hike in ’10. After the increase, major banks will have to keep 16.5% of their deposits on reserve. For large banks, RRR is now raised to 16.5% and for small banks, it is now 14.5%. This compares to the historical high of 17.5% in the summer of 2008, right before the Lehman crisis. Qian Wang