good news, now we can focus on the monetary effects of the japan tsunami and forget about the nuclear effects.
Good (but long) description of what has been going on with Japanese nuclear reactors
morgsatlarge.wordpress.com
re japan's neighbor, china, we should get ready for qe3, because now the tightening must be loosened
China: January-February data indicate the economy is cooling down (gloldman sachs)
March 11, 2011
The National Bureau of Statistics (NBS) released January-February economic data today. Here are our thoughts:
Activity growth
January-February industrial production (IP) grew by 14.1% yoy (our forecast: 14.0% yoy, consensus forecast: 13.3% yoy; Asia-MAP score: 8 [4, 2]), up from 13.5% yoy in December. A simple seasonal adjustment would indicate a sequential growth (February versus December) of 21.9% mom s.a. ann., lower than the 25.2% mom s.a. ann. growth in December 2010. However, because there was a statistical change (see the takeaway section below for more information) from January and the new series has a growth rate higher than before by 0.7 ppt for 2010 on average and by 0.5 ppt towards the end of 2010, we believe it is best to adjust for this bias. The implied sequential growth is around 18%, lower than the 20%+ sequential growth in 4Q2010 (December sequential growth was particularly high at 25% ann.).
January-February fixed asset investment (FAI) growth came in at 24.9% yoy (our forecast: 27.0% yoy, consensus forecast: 23.0% yoy, Asia MAP score: 2 [1, 2]). There is also a statistical standard change for FAI data but back testing suggests the growth rates of the new series has no consistent tendency to be higher or lower than the old series. Note that the quality of FAI data is too low to make reliable gauge of its sequential growth momentum.
January-February nominal retail sales growth came in at 15.8% yoy (our forecast: 19.1% yoy, consensus forecast: 19.0% yoy), down from 19.1% yoy in December. The implied real retail sales growth is 10.9% yoy, down from 14.4% yoy in December.
CPI and PPI inflation
February CPI inflation stayed flat at 4.9% yoy (our forecast: 5.1% yoy, consensus forecast: 4.8% yoy). Month-on-month CPI fell to 4.2% mom s.a. ann. in February, down from 5.0% mom s.a. ann. in January and much lower than the 8% annualized sequential growth in 4Q2010.
Food prices rose 11.0% yoy in February, up from 10.3% yoy in January. Its sequential growth rose to 14.6% mom s.a. ann., up from 1.8% mom s.a. ann. in January.
Non-food prices rose 2.3% yoy in February, down from 2.6% yoy in January. Its sequential growth fell to -0.5% mom s.a. ann., down from 8.7% mom s.a. ann. in January.
Meanwhile, PPI inflation rose to 7.2% yoy in February, up from 6.6% yoy in January (our forecast: 7.1%, market consensus forecast: 7.0%). The implied sequential growth is 16.7% mom s.a. ann., down from 23.6% mom s.a. ann. in January.
Key takeaways:
Sequential industrial activity growth slowed but remained at a robust level
There are an unusual number of issues which complicate the interpretations of the latest data (apart from the Lunar New Year distortions): 1) there was a change in terms of the survey coverage for IP and FAI data. For IP, the NBS used to collect data from industrial companies with annual revenue of Rmb5 million or above, this level has been raised to Rmb20 million. The NBS’ back testing showed in 2010 the new series had a consistently slightly higher growth rate: 0.7 ppt on average for the whole year and 0.5 ppt towards the end of the year. As for the new series for FAI, the NBS used to collect data from investments sized Rmb0.5 million or above, this level has been raised to Rmb5 million. There is no consistence difference in the growth rates of the two series, i.e., the new series had faster growth rates in some months and slower growth in other months). 2) There might had been some underreporting of IP data in 4Q2010 because of the energy-reduction-related production restriction policies. These measures render the normally trustworthy IP and especially electricity data to tend to underreport true growth. Since these policies became less restrictive in 2011, IP and electricity level data are likely to be more reliable now but the sequential growth rates would be distorted. Amid all the noises, our best guess is sequential activity growth as proxied by IP data slowed from a very high level of 20% in 4Q2010 towards its trend level (around 16%) but stays at a robust level of 17%-18%.
Retail/consumption growth might slowed but we are not convinced about the magnitude of the slowdown was as large as it was suggested by retail sales data
The significant slowdown in retail sales growth was partially caused by the slowdown in automobile sales as a result of purchase restrictions and cancellation of tax benefits. However, the lack of breakdown for total retail sales makes it difficult to quantify the impacts. While some observers took auto sales reported out of the total retail sales data and showed the excluding-auto retail sales growth went up, we believe such a practice can be misleading because the sources of data are different and hence not directly comparable (e.g., automobiles are not all sold via retailers surveyed by the NBS). The NBS does have more breakdown data for retail sales made by larger retailers, including automobile sales data. These data showed that the slowdown was rather widespread though slower automobile sales growth was clearly a main driver. Having said that, we need to point out that the behavior of retail sales data has been very odd in recent years in the sense there tends to be level change in its growth rate at the beginning of the year and growth rates in the rest of the year tend to be stable (around 18% in 2010, 15% in 2009, 20%-21% in 2008). We believe such a pattern probably reflected statistical issues more than changes in economic fundamentals, especially in terms of the turn of the years. So we would take a large grain of salt in this apparently very weak retail sales data.
Investment growth probably was not as strong as official data suggested
The rebound in FAI growth is hard to interpret as there is a very consistent tendency for FAI yoy to rebound at the start of each year (again, we believe this reflects statistical issues as supposed to underlying economic fundamentals). Although the sped up construction of social housing tends to give support to real estate investments (note social housing investment is included in real estate investments), given the constraints on overall fiscal expenditure and credit supply, it will likely be at the expense of other investments. We believe overall domestic demand (consumption + investment) growth probably slowed while external demand growth has been holding up, which resulted in a slowdown in aggregate demand growth.
Inflationary pressures have become lower but have not disappeared
Although February CPI inflation could have been higher than the 4.9% reported if it was totally free from issues in data reporting, we believe the underlying growth momentum has clearly softened compared with 4Q2010. However, the current sequential inflation levels of around 4% for CPI and 17% for PPI still suggest inflationary pressures are still non-neglectable. With the base of CPI getting lower in the coming months, it is still likely that we will see higher yoy CPI, including March. |
