USA Economic update

July 2011

Economic forecasts
2009 2010 2011f 2012f Real GDP (% yoy) CPI (% yoy) CPI core rate (% yoy) Unemployment rate (%) Employment growth* (% yoy) Current account balance** EUR/USD -2.6 -0.4 1.7 9.3 -4.4 -2.7 1.39 2.9 1.6 1.0 9.5 -0.7 -3.2 1.33 2.7 3.1 1.3 8.7 1.0 -3.0 1.46 2.7 2.2 2.0 8.2 1.1 -2.7 1.30

Is the labour market trend reversing?

ISM index: The ISM index for the manufacturing industry gained 1.8 to reach 55.3 points in June, recovering somewhat from its sharp declines in recent months. In contrast, sentiment in the services sector worsened again over the past month. The corresponding indicator fell by 1.3 to 53.3 points. At their current levels, the ISM indices are accurately reflecting the state of the economy after painting an overly positive picture in the winter of 2010/2011. If these levels can be maintained, the economic outlook will remain decent. Labour market: New jobs only came in at 18 k in June, a serious disappointment for the second time in a row. Also negative is the fact that the figures for the previous month were revised downward for the third month in a row. This is usually a classic sign of a weakening labour market. We think that it is still too early to assume that the labour market is slowing on a longerterm basis. Many indicators are still pointing to solid employment growth (ADP employment report, initial jobless claims, the employment components of the ISM indices), and the decrease in job growth seen in May and June is so severe that it would be a clear sign of a massive cooling of the economy, in other words a downturn, if it were to continue. We dont see this happening, so we expect an average level of new jobs of roughly 150 k per month for the rest of the year. If this assumption proves to be incorrect in the coming months, we will have to significantly lower our economic projections for this year and next year. The flash estimate for real gross domestic product growth in the second quarter will be released on 29 July. Despite the rather lacklustre performance of numerous economic indicators between April and June, we maintain our above-consensus projection of +2.5% p.q. (annualised). Our main reasons for this are the monthly foreign trade and business inventories data. These are pointing to a positive contribution from net exports and inventories. Another noticeable increase in investments in software and equipment and a rebound in government consumption should compensate for the low growth in private consumption. Upward pressure on consumer prices declined recently thanks to the lower crude oil price. The year-on-year figure for July will still rise to just under 4% due to base effects, but should then move quickly towards 2%. The core rate is still only rising moderately.

* non-farm ** % of GDP Source: Thomson Reuters, Raiffeisen RESEARCH

Inflation
6 5 4 3 2 1 0 -1 -2 -3 2006 2007 2008 2009 2010 2011 2012 CPI* (% yoy) CPI core rate (% yoy) Forecast

* Consumer Price Index Source: Thomson Reuters, Raiffeisen RESEARCH

Labor market
11 10 9 8 7 6 5 4 Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 12 Non-farm payrolls (qoq, thsd) Unemployment rate (%) Forecast 1,000 500 0 -500 -1,000 -1,500 -2,000 -2,500

Source: Thomson Reuters, Raiffeisen RESEARCH

Analyst Jrg Angel, CIIA

joerg.angele@raiffeisenresearch.at

USA

Data calendar
Date Thu, 14 July Fri, 15 July Fri, 15 July Fri, 15 July Fri, 15 July Tue, 19 July Tue, 19 July Thu, 21 July Tue, 26 July Wed, 27 July Wed, 27 July Fri, 29 July Fri, 29 July Mon, 1 August Tue, 2 August Wed, 3 August Wed, 3 August Fri, 5 August Source: Bloomberg Indicator Retail sales Consumer price index Empire State Manufacturing index Industrial production Consumer Confidence U. of Michigan Building permits Housing starts Philadelphia Fed index Consumer Confidence Conf. Board Feds Beige Book Durable goods orders GDP, first estimate Chicago PMI ISM index manufacturing Consumer spending ISM index non-manufacturing ADP Employment report Employment report Period June June July June July June June July July June/July June Q2 July July June July July July

Business cycle
6 4 2 0 -2 -4 -6 -8 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 06 06 07 07 08 08 09 09 10 10 11 11 12 12 Real GDP (% qoq, annualised)
Source: Thomson Reuters, Raiffeisen RESEARCH

Forecast

% yoy

Real GDP quarterly profile of components (qoq annualised respectively yoy in %)

Q3 10 Q4 10 Private Consumption Government Consumption Residential Investment Non-residential Investment Investment in Equipment & Software Inventories* Domestic Demand Exports Imports Net Exports* Gross Domestic Product 2.4 3.9 -27.3 -3.6 15.4 1.6 4.2 6.7 16.8 -1.7 2.6 4.0 -1.7 3.3 7.7 7.7 -3.1 0.1 8.6 -12.6 3.3 3.1 Q1 11 2.2 -5.8 -1.9 -14.8 8.7 1.2 1.8 7.7 5.1 0.2 1.9 Q2 11f Q3 11f Q4 11f Q1 12f 0.8 4.0 2.0 -4.0 7.0 0.6 2.4 10.0 7.5 0.1 2.5 3.2 1.0 9.0 0.1 4.0 1.3 4.3 12.0 17.0 -1.0 3.3 3.6 1.0 10.0 22.8 25.1 -1.3 4.0 8.0 10.0 -0.5 3.6 2.8 0.0 10.0 -8.4 -9.0 -1.0 0.2 0.0 -4.0 0.7 0.8 2009 -1.2 1.6 -22.9 -20.4 -15.3 -0.6 -3.7 -9.5 -13.8 1.1 -2.6 2010 1.7 1.0 -3.0 -13.7 15.3 1.4 3.3 11.7 12.6 -0.5 2.9 2011f 2.5 -0.2 -0.4 -2.5 10.3 0.1 2.5 8.8 6.6 0.1 2.7 2012f 2.9 0.6 8.8 2.2 7.5 -0.3 2.7 6.0 5.2 -0.1 2.7

* Contributions to percent change in real Gross Domestic Product Source: Thomson Reuters, Raiffeisen RESEARCH

Employment*: Setbacks usual

106.0 105.0 104.0 103.0 102.0 101.0 100.0 99.0 98.0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

avg. of the 9 recessions since 1945

June 11

Mar-91

Nov-01

Jun-09

* non-farm payrolls private, index end of recession = 100 Source: Thomson Reuters, Raiffeisen RESEARCH

USA

Economic update
This report was completed on 15 July 2011

Acknowledgements

Editor
Raiffeisen RESEARCH GmbH A-1030 Vienna, Am Stadtpark 9 Tel: +43 1 717 07-1521 Head: Peter Brezinschek (1517) Research Sales: Werner Weingraber (5975) Economics, Fixed Income, FX: Valentin Hofsttter (Head, 1685), Jrg Angel (1687), Wolfgang Ernst (1500), Gunter Deuber (1614), Ingo Jungwirth (2139), Julia Neudorfer (5842), Andreas Schwabe (1389), Gintaras Shlizhyus (1343), Gottfried Steindl (1523), Martin Stelzeneder (1614) Credit/Corporate Bonds: Christoph Klaper (Head, 1652), Christoph Ibser (5913), Igor Kovacic (6732), Martin Kutny (2013), Peter Onofrej (2049), Gleb Shpilevoy (1461), Alexander Sklemin (1212), Jrgen Walter (5932) Stocks: Helge Rechberger (Head, 1533), Aaron Alber (1513), Christian Hinterwallner (1633), Jrn Lange (5934), Hannes Loacker (1885), Richard Malzer (5935), Johannes Mattner (1463), Christine Nowak (1625), Leopold Salcher (2176), Andreas Schiller (1358), Connie Schmann (2178), Magdalena Wasowicz (2169) Quant Research/Emerging Markets: Veronika Lammer (Head, 3741), Mario Annau (1355), Lydia Kranner (1609), Nina Kukic (1635), Albert Moik (1593), Manuel Schuster (1529) Technical analysis: Stefan Memmer (1421), Robert Schittler (1537)

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