Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview
Chart 7: Change in US Private Inventories
Source: Reuters EcoWin Pro
Q4 (f) Q3 Q2 Q1
GDP % q/q AR 4.6 2.2 -0.7 -6.4
GDP Deflator % q/q
AR 1.2 0.4 0.0 1.9
Key Point:
Real GDP growth jumped in Q4 to an estimated 4.6%
q/q annualised mostly because of inventories. The
deflator remained subdued rising by 1.2%.
BNP Paribas Forecast: A Big Increase
US: GDP (Q4 2009)
Release Date: Friday 29 January
Q4 GDP growth is expected to have accelerated sharply to
4.6% q/q annualised from the downward revised increase
of 2.2% in Q3. While our forecast is a sharp pick-up from a
disappointingly slow initial quarter of recovery, the
acceleration is more than entirely attributable to the
reduction in inventory de-stocking. The change in
inventories is forecast to contribute 3.6 percentage points
to GDP growth after a 0.7pp contribution in Q3. Meanwhile,
final sales are expected to grow just 1.2%, down from the
1.5% pace a quarter earlier and well below what we
consider to be the economy’s potential. Consumer
spending is expected to grow 1.8%, below the 2.8% pace
in Q3 when spending was boosted by the cash for clunkers
programme. Growth in residential investment is also
projected to slow, to 5.8% from 18.9% as housing starts
have lost momentum. Investment in equipment and
software should pick up modestly to 2.5% from 1.5%, while
spending on structures is forecast to decline 22% after an
18.4% drop. Government spending is expected to grow
2.1% after a 2.6% rise. The trade deficit is expected to
widen modestly, subtracting 0.2pp from growth after a
0.9pp subtraction in Q3. The GDP deflator is forecast to
rise by an estimated 1.2% in Q4, up from 0.4% in Q3.
Ultimately, growth will need to be generated from final
demand as the inventory cycle fades, so we would not put
too much weight on the burst in the headline rate.
Chart 8: US Total Compensation is Decelerating
Source: Reuters EcoWin Pro
Q4 (f) Q3 Q2 Q1
Total Compensation 0.4 0.4 0.4 0.3
Wages and Salaries 0.4 0.4 0.4 0.3
Benefits 0.4 0.4 0.3 0.5
BNP Paribas Forecast: Slower Wage Growth
US: Employment Cost Index (Q4 2009)
Release Date: Friday 29 January
We expect the Employment Cost Index to rise 0.4% in Q4
2009 after similar gains in Q2 and Q3. Our forecast would
be consistent with further deceleration in growth of total
compensation to 1.4% y/y from 1.6%, a new record low
since this data series began in 1982. Both wages and
salaries and benefit cost growth are on downward trends in
the private sector and among state and local government
workers. The ECI is one of the broadest measures of
employee compensation, and it slowed sharply through the
recession as benefit costs moderated sharply along with
wages. The record low reading would be consistent with
the weakest labour market since WWII, something that
feeds into compensation with a significant lag - suggesting
more weakness over the next year. This will keep growth in
disposable income subdued even as the labour market
recovers, leaving businesses with little pricing power.
Key Point:
We expect the ECI to have risen 0.4% in Q4 2009,
leaving total compensation growth at a new record
low of 1.4% y/y.
Market Economics 29 January 2010
Market Mover
59
www.GlobalMarkets.bnpparibas.com