Economy in Brief: September 2022

The goods trade deficit for the United Kingdom struck £19.36 billion from £22.85 billion in July compared to June. The deficit has been steady with an average of £18.5 billion over 12 months, £21.5 billion over six months and £21 billion over three months.

U.K. export growth has been volatile but has been strong. Nominal exports are growing at a 26.6% pace over 12 months, at a 58.1% annual rate over six months, and at a 23.9% annual rate over three months. Nominal imports are up by 29.4% over 12 months, slowed to a 10.7% pace over six months and slowed further to a 1.1% annual rate over three months.

Real flows monthly Real trade flows for the U.K. demonstrate very different patterns from the nominal flows. Real exports still outperform imports in July, growing by 6.8% over June compared to a 3.7% drop in real imports. In June both real exports and real imports fell with real exports falling 9.3% month-to-month and real imports falling 3.2% month-to-month.

Real flows sequentially The sequential trends for real exports and real imports show real exports persistently growing while real imports have turned to a pattern of declines. Real exports are up by 4.3% over 12 months, up at a 26% annual rate over six months and up at a 3.4% annual rate over three months. This compares to real imports that are up by 8.8% over 12 months and are stronger than real exports. But over six months real imports fall at a 13.6% annual rate, and they fall again over three months at a 16.4% annual rate.

Commodity composition of real trade flows Real exports Commodity categories tell a significant story about trends in the U.K. Exports show steady gains in capital goods with the 3.2% gain over 12 months, and an annual rate of growth at 14.5% growth over three months. Road vehicles show a steady to strong acceleration, rising at a 9.9% annual rate over 12 months, gaining at a 40.9% annual rate over six months and accelerating again to a 72.1% annual rate over three months. Basic materials fail to trend consistently but fall by 4.8% over 12 months and are declining at a 44.7% annual rate over three months. Foods, feeds, beverages & tobacco echo the trends for basic materials although they rise by 3.2% over 12 months and then fall at a 16.6% annual pace over three months. Both basic materials and foods, feeds, beverages & tobacco show solid gains over six months, then give those gains up over three months. Those gain keeps those flows from having any kind of a steady trend in play.

Real imports On the import side, capital goods imports grow at a 12.7% pace over 12 months, which increases slightly to 14.2% at an annual rate over six months and then slips to a 6% annual rate decline over three months. Road vehicles show steady deceleration of imports, logging growth of 25% over 12 months, falling to a pace of 11.3% annualized over six months and logging a 39.5% annual rate decline over three months. Basic material imports are also in a fairly steady state of decline. They decline over all horizons, falling and 11.8% annual rate over 12 months, the slowing that drop only very slightly to a 10.5% annual rate of decline over six months and then accelerating sharply to a 61.3% annual rate decline over three months. Food, feeds, beverages & tobacco show declines over two of the three horizons; imports rise by 3.8% over 12 months, then slip at a 6.8% annual rate over six months and then decline at a more moderate 1.5% annual rate over three months.

Trends in perspective What these trends clearly show is extremely weak import growth over three months; all three-month growth rates for the import categories are negative over three months. Overall imports decline over six months too although that decline is not as broad based. Over 12 months imports see a somewhat broader increase in real terms. By comparison, exports grow at a moderate 3.4% pace in real terms over three months with the declines in only two of the categories while over six months the export gain is solid at 26% with increases across all the commodity categories. The 12-month performance of exports is moderate with the growth rate of 4.3% and with a decline in only one of the featured categories.

Manufacturing industrial production in France fell by 1.6% in July after advancing 0.9% in June and by 1% in May. Production is up by 0.2% over 12 months; however, it falls at a 3.1% annual rate over six months and then rebounds to rise at a 3.9% annual rate over three months. The French trend for production is not yet clear or established.

Sector performance in French manufacturing also shows mixed trends. Consumer durables output was up by 0.6% in July after falling in June; however, the June decline came after a strong surge in May. Consumer nondurables output fell by 1.5% in July after rising by 1% in June and falling by 0.3% in May. French capital goods output fell by 1.4% in July after rising by 1.2% in June and rising by 1.5% in May. Intermediate goods output fell by 2% in July after rising by 0.8% in June and rising by 1.0% in May.

The sequential trends for sector data also vary widely. Consumer durables output in France is accelerating strongly from a 5.3% annual rate over 12 months to an 8.9% annual rate over six months to a 30.1% annual rate over three months. Consumer nondurables, however, are losing momentum; that sector's output rises by 1.1% over 12 months, but falls at a 3.5% annual rate over six months and continues to fall at a lesser, 3% pace, over three months. Capital goods has output up by 0.5% over 12 months; it declines at a 0.7% annual rate over six months then rebounds to post a strong 4.9% annual rate of growth over three months. Intermediate goods output falls by 1.9% over 12 months and falls more substantially at a 6.8% annual rate over six months. That pace of the decline for intermediate goods output is sharply trimmed to -0.8% over three months but it's still a decline.

On balance, sector trends in manufacturing show great strength in consumer durables, with lingering weakness in consumer nondurables, moderation in capital goods that is topped up by strong three-month performance despite a decline in July. Intermediate goods show a steady diet of declines in output.

Japan's second quarter GDP was revised up to show growth of 3.5% at an annual rate compared to the previous estimate of 2.2% - an upward revision greater than what had been expected. Japan's year-over-year GDP growth in the second quarter is now up to 1.4% from 1% previously. The 1.4% growth rate is the strongest since the second quarter of 2021 when GDP rose at a 7.3% year-on-year rate after declining in the first quarter under the pressure of COVID policies.

Japan's quarterly growth Private consumption growth in the quarter was revised up to a 4.8% growth rate from 4.6% previously. Public consumption in the second quarter grew at a 2.8% rate annualized compared to 2.2% previously. Private sector consumption continues to be the principal driver of GDP growth.

Gross fixed capital formation in the quarter grew by 4.9% at an annual rate compared to 3.4% previously. Plant & equipment spending rose to an 8.3% annual rate, up from 5.8% previously as investment demand heated up in the quarter. However, the housing estimate was little changed in the second quarter with revised housing investment falling at a 7.3% annual rate compared with decline at a 7.2% annual rate previously. Housing continues to lag and to contract.

Export growth was unrevised, rising at an annualized 3.7% pace quarter-to-quarter while imports were weaker, rising by 2.2% compared to 2.7% previously. Weaker import growth adds slightly to GDP growth.

Japan's domestic demand was stronger at a 3.2% annual rate in the second quarter compared with its 2% pace previously.

Annual rates of growth Upon revision Japan's economy is looking firmer and stronger than it was previously. Still, year-on-year growth is up at a modest 1.4% for GDP while domestic demand is up at a 1.6% growth rate over four quarters. Consumption continues to drive GDP; the year-on-year increase in private consumption is up by 3% compared to 1.9% for public consumption. Year-on-year gross fixed capital formation is falling at a 3% annual rate over four quarters marking the fourth straight quarter in which gross fixed capital formation logs a year-on-year decline. Plant & equipment spending is flat year-over-year in the second quarter, and that's an improvement from its previous pace of -0.8%. Year-on-year housing investment is down by 6.3%, marking the third quarter in which the year-over-year growth rate is negative for housing investment. The year-on-year trend for exports continues to diminish; exports grow at a 2.5% pace over four quarters; that's the fourth quarterly deceleration in a row for the year-over-year growth rate for exports. Imports are up by 3.3% over four quarters. Imports grew at a 7.3% pace in the first quarter; second quarter growth is the weakest annual import growth since the first quarter of 2021. Japan's domestic demand which rose 1.6% over four quarters is slightly stronger than the 1.4% gain it made on that same basis in the first quarter and stronger than the roughly half a percentage point gains logged in the fourth quarter of 2021 and in the third quarter of 2021. But domestic demand is only firmer and doesn't show any clear signs of acceleration.