Market Outlook - BNP PARIBAS - Investment Services India

we believe that contractions in private payrolls willfollow (Chart 2). The latest Beige Book showedcompanies reported more doubt about the strengthof the recovery, noting “restraint in hiring and capitalspending plans”. When in doubt - you don’t expand.Nonetheless, in line with better economic data inSeptember, our in-house Beige Book WeaknessIndicator, which tallies all instances of the wordscontaining the root “weak” and, thus, provides uswith a quantitative measure for this qualitative report,improved to 63 counts from 86 in the previous report.However, the reading remains at recessionary levelsand suggests a double-dip recession is probably stillin the cards (Chart 3).Foreigners support domestic regional economiesIn the details, the latest Beige Book suggested thatconsumer spending was up slightly in most Districts,with auto sales and tourism leading the way. Themajority of Districts reported increases in auto salesas several Districts noted a greater availability of newvehicles as the supply disruptions that had plaguedauto dealerships in the aftermath of the Japanesedisaster subsided. Thus, as the supply chaindisruption unwound, we saw a recent jump in autosales.The pick up in tourism activity throughout this yearhas shown a somewhat more persistent nature.Indeed, a weaker dollar continues to attract moretourists each year. The Beige Book noted that“tourism was generally higher in those Districtsreporting on the sector”. For example, contacts inNew York noted that, “despite the negative impact ofHurricane Irene, Broadway and hotel revenuescontinued to rise”. Regional data are reported with asignificant lag, however, the data available throughthe summer months of this year indicated a higherlevel of New York JFK airport traffic in 2011compared to the previous years (Chart 4), and asignificant pick up in tourism-related industries’payrolls (Chart 5). As such, external demand forcheaper dollar-denominated goods helps supportdomestic retail sales but might not necessarily reflectthe underlying strength of domestic consumerspending. In that respect, the Beige Book noted that“a large flow of Canadian shoppers has contributedsignificantly to strong overall sales” in the New Yorkregion.Going into a holiday season…Business spending increased somewhat from theprevious report. However, a number of Districtsreported that a weaker and more uncertain economicoutlook had increased caution and was weighing onfuture spending plans. Several districts indicated that“many retailers were reluctant to build inventoriesChart 4: New York JFK Airport TrafficSource: Haver AnalyticsChart 5: Amusement, Gambling, and RecreationIndustries – New York StateSource: Reuters EcoWin ProSource: Reuters EcoWin ProChart 6: Container TrafficTeus: 20-foot equivalent units or 20-foot-long cargo containerahead of the holiday season, pointing to recentdeclines in consumer confidence”. The recent dataon container traffic suggest the shipping volumes inAugust and September were the worst since therecession in 2009 (Chart 6). While the incomingspending data have pointed to resiliency, sentimentremains fragile and threatens to lead to a selffulfillingcontraction in activity. Political developmentsout of Europe will be key to which way the tide turns.Yelena Shulyatyeva 20 October 2011Market Mover13www.GlobalMarkets.bnpparibas.com