Japanese consumption makes modest recovery

Chris Scicluna
Emily Nicol

Japanese spending makes modest recovery in September, still down in Q3; labour earnings data and Economy Watchers survey to come
Ahead of the first estimate of Q3 GDP due a week today, the BoJ’s monthly consumption activity index – second only to the Cabinet Office’s synthetic consumption index as the most reliable indicator of the national accounts based measure of private consumption – provided further insight into household expenditure at the end of the quarter. Despite the state of emergency restrictions still in place in September, this signalled a modest pickup in household spending that month for the first month in three. But the 0.7%M/M rise followed a steeper-than-previously-estimated decline in August (-2.3%M/M). As such, consumption fell for a third consecutive quarter and by 0.8%Q/Q in Q3. Within the detail, spending on services rose a modest 0.3%M/M in September to leave it down ½%Q/Q and a sizeable 17% lower than the pre-pandemic level. The improvement in spending on non-durable goods was more noticeable (+4.4%M/M) to leave it more than 1% higher in Q3 and 1½% higher than the pre-pandemic level. In marked contrast, however, spending on durable goods fell a striking 12.8%M/M in September, the most since April 2020, to leave it down 10.0%Q/Q in Q3, more than 12% lower than the pre-pandemic level and down by almost a third compared with the pre-consumption tax hike peak.

Looking to the rest of the week, tomorrow’s labour earnings figures will be of interest, albeit headline wage growth is likely to remain relatively subdued despite a possible pickup in overtime earnings in September. Moreover, given the recent (but admittedly modest by global standards) uptick in inflation, real wage growth is likely to return to negative territory for the first time since January. With respect to the inflation outlook, Thursday’s goods PPI release is expected to see the headline annual rate rise to its highest since the global financial crisis, largely on the back of higher energy prices. Japanese sentiment surveys due this week will include tomorrow’s economy watchers survey for October, and the monthly Reuters Tankan indices for November on Wednesday.

China’s exports beat expectations to push trade surplus to record high; inflation to come on Wednesday as Xi set to reinforce authority
Weekend data showed that Chinese export growth remained strong for October, with shipments up 27.1%Y/Y in USD terms, down just 0.1ppt from the prior month and more than 4ppts above the consensus forecast of 22.8%. And while stronger than in September, import growth fell more than 5ppts short of the consensus at 20.6%Y/Y. So, China’s trade surplus rose to a record high of USD84.5bn. With export price inflation highly likely again to have fallen short of import price inflation, in volume terms the increase in the trade surplus will have been even larger, so that net exports provided some welcome offset for weak domestic demand. By destination, exports to the EU saw strongest growth in October, up 44.3%Y/Y, with somewhat softer growth in shipments to the US, up 22.7%Y/Y.

Looking ahead, politics will be a key focus this week, with President Xi Jingpin set to reinforce his authority at the sixth party plenum, in particular by securing a third term to extend his indefinite rule. More prosaically, data-wise, Wednesday’s release of China’s October inflation figures is expected to report a notable doubling in the headline CPI rate from 0.7%Y/Y to 1.4%Y/Y, which would mark the firmest since September 2020. But it would it still be less than half the authorities’ target of around 3% for the year. And it would be extremely subdued compared with PPI inflation, which is expected to have risen further to 12½%Y/Y, which would be the highest since the mid-1990s.

Euro area IP set to have fallen in September as supply constraints bind
After last week’s weak German and French IP reports, this week’s aggregate euro area production release (Friday) are likely to show that output fell around 1%M/M in September to leave it similarly down a little more than 1% over the third quarter as a whole. We will have more insight after the release of the (typically volatile) Irish numbers later this morning and Italian figures on Wednesday. Survey measures due this week will include the euro area’s latest Sentix indices (today), German ZEW investor expectations (tomorrow) and BoF business indicators (Wednesday). Among other national releases, German and French goods trade data (tomorrow) are likely to report that exports remain subdued amid ongoing supply bottlenecks. Meanwhile, final German and Spanish inflation numbers for October (Wednesday and Friday respectively) are expected to align with the flash estimates that showed the headline harmonised rates jumping on the back of higher energy prices by 0.5ppt to 4.6%Y/Y and 1.5ppts to 5.5%Y/Y respectively. Elsewhere, ECB President Lagarde will give opening remarks at the ECB forum on banking supervision (tomorrow), while ECB Chief Economist Lane will speak at several events (today and Friday), with Executive Board member Schnabel also due to speak (tomorrow and Thursday).

UK GDP growth in Q3 set to have slowed despite a rebound in services
With some MPC members seemingly concerned about the recent loss of economic recovery momentum, Thursday’s Q3 GDP estimate alongside the monthly deluge of output and trade numbers for September will be closely watched. After it surged by 5½%Q/Q in Q2, GDP growth looks set to have slowed amid enduring supply constraints and a rise in coronavirus infections. In particular, we expect growth of 1.8%Q/Q in Q3, a touch above the Bloomberg consensus. A strong rebound in services in Q3 thanks to the further easing of restrictions will be offset to some extent by weaker manufacturing and construction output, as activity remained hampered by supply bottlenecks. Beyond the GDP data, tomorrow will bring the BRC’s latest retail sales monitor, while Thursday will bring the RICS house price survey for October. Elsewhere, BoE members due to appear publicly this week include Governor Bailey at a joint Fed, ECB, BoE and BoC conference on diversity (tomorrow), and external MPC members Tenreyo (Wednesday) and Haskel (Friday).

US inflation and consumer sentiment in focus
A key focus in the US this week will be inflation, with October’s PPI numbers due tomorrow and CPI figures on Wednesday. These are expected to show that higher energy and food prices remained a key driver of inflation last month, with some further signs of underlying price pressures starting to feed through too. Daiwa America’s Mike Moran expects to see a rise of 0.5%M/M in the headline CPI, which would likely take the annual rate of inflation up 0.4ppt to 5.8%Y/Y, the highest since 1990. But even when excluding food and energy, prices are forecast to have risen for the ninth consecutive month. With the impact of Covid-related discounting that weighed in September set to have diminished, Mike expects the core CPI to rise 0.4%M/M to push the annual rate back up to 4.3%Y/Y. Meanwhile, after the Veterans Day national holiday on Thursday, Friday will bring the preliminary University of Michigan’s consumer sentiment survey, which will include an update on inflation expectations. 

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