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Economy in Brief

Seeking Alternative Company
by Andrew Cates  August 12, 2021

Economic forecasters have become a little more pessimistic about the global economic outlook of late. That at least is the message from the latest (August) Blue Chip survey of economic forecasters that was published earlier this week. Among the major developed and developing countries, there were small downward revisions to the GDP consensus for 2021 in the US, the UK, Japan, and India. Forecasts for the Euro Area and China, in contrast, were unchanged relative to the previous month's survey. However, that follows an earlier upward revision to GDP forecasts for the Euro Area but a downward revision for China in July (see figure 1 below).

Figure 1: Mostly downward revisions to the Blue Chip GDP consensus for 2021 in recent weeks

Source: Wolters Kluwer/Haver Analytics

That more pessimistic take on global growth this year has not, however, yet generated any let-up to the positive momentum that's been unfolding to inflation expectations. Indeed headline CPI forecasts for most major economies were revised up in August compared with July. Japan and China, however, bucked that global trend thanks to modest downward revisions to the CPI consensus for the former and unchanged forecasts for the latter (see figure 2 below).

Figure 2: Mostly upward revisions to the Blue Chip CPI consensus for 2021

Source: Wolters Kluwer/Haver Analytics

All that said, there appears to be less uncertainty about the inflation outlook in most major economies looking ahead to next year. The spread between the high forecasts and low forecasts for CPI inflation in 2022 – a gauge of forecasters' uncertainty – has remained remarkably stable in recent months and on the whole drifted a little lower compared with the start of this year. The US, however, is the clear and notable exception to this as CPI inflation forecasts for next year have risen quite markedly, from a low of 2.1% in January to 3% in August. The range between high and low forecasts has jumped sharply as well (see figure 3 below).

Figure 3: Increasing range of Blue Chip consensus US CPI forecasts for 2022 suggests more uncertainty

Source: Wolters Kluwer/Haver Analytics

How does all this square though with incoming economic data in recent weeks? On the global growth front the answer to this is straightforward. Most forward looking sentiment surveys (e.g. PMIs, sentix surveys) rolled over in July and/or early August suggesting that business confidence has softened a little in many major economies, albeit from high levels. Even higher frequency indicators of economic activity in the meantime also suggest that global growth momentum is now cooling. Our high frequency gauge of global growth, for instance, comprising trends in population mobility, job postings and restaurant dining activity, climbed at a much slower rate in July and has since edged lower in the first few days of August (see figure 4 below).

Figure 4: High frequency data suggest that global growth is losing momentum

Source: Google, Indeed, Open Table, Haver Analytics. This indicator is an unweighted normalised average of three component series concerning trends in mobility, job postings and restaurant dining. Global mobility trends are calculated from unweighted normalised averages of Google's retail and recreation data for the US, Japan, Germany, France, the UK, Canada and India. Global job postings data are calculated from unweighted normalised averages of Indeed's labour market data for the US, Canada, France, Germany and the UK. Global dining data is calculated from Open Table's global aggregation of restaurant dining trends, in turn derived from data for the US, Canada, Germany, the UK, Australia, Mexico, and Ireland. Care needs to be taken in interpretation as baselines differ across component series.

This message of ebbing global economic momentum moreover is reinforced by other high frequency indicators such as surprise indices. The US and China variants of these indices have turned negative, for example, and – partly as a consequence – the global variant has slowed down quite sharply (see figure 5 below).

Figure 5: Economic data surprises have turned negative in the US and China

As we've discussed in previous posts (see for example The Return to Normal) as well as our recent Haver webcast, there are a number of narratives that have been doing the rounds that seek to explain why global growth is cooling. These encompass the impact of the Delta variant on COVID case numbers and mobility as well as inflation angst and reduced impulses from loose monetary and fiscal policy. Some of the easy gains from the venting of pent-up demand as economies have been unlocked earlier this year may have also now run their course. And a shift from spending on goods to spending on services is also now undeniably playing a role. The evidence for that last factor can be seen in conventional macroeconomic data. But it can be illustrated too via some company level data for Amazon (these data incidentally is stored in Haver's GLSECTOR database together with a number of other data points for bellwether companies).

Data from Amazon shows a distinct rotational shift in its sales away from online activity toward physical stores (see figure 6 below). In other words people are finding it easier to embark on retail activity away from their computer screens and much of that activity will encompass spending on recreation, on hospitality or on other services that previously had been difficult to access. The key point here is that the multiplier to global economic growth from spending on goods that have various stages of production and various stages of labour input, is typically associated with heightened world trade. That spending is liable to be much bigger in its impact on global growth relative to heightened activity in domestic service sectors.

Figure 6: Sales activity at Amazon

Finally on the inflation front the latest raft of economic data from around the world support the view that forecasters have been taking, namely that inflation risks may lie to the upside for the time being and that the US outlook in particular is more uncertain. That being said inflation doves can find a few crumbs of comfort in some of the recent high frequency data points. These include sharp declines in lumber prices in recent weeks, a more recent slide in iron ore prices, and – far more pertinent for the US – early signs that used-car prices have started to ease (see figure 7 below). Indeed that last data point was a key factor behind the more benign – and less-than-expected - climb of 0.3% in the US core CPI index in July, published earlier this week. A rotation in spending away from goods and towards services and easing supply side congestion are at the root of these price declines. Ebbing economic growth more generally may additionally generate some further relief on the inflation front in the period ahead.

Figure 7: Falling prices for some commodities and used vehicles in the US

Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.

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