December 2009
GDP growth globally and in the major economies is a key determinant of airline passenger and cargo traffic growth.
GDP in 2009 (IMF): World growth to fall to ½% in 2009, its lowest rate since World War II, despite wide-ranging stimulus actions.
GDP growth remains weak because financial strains remain acute; pulling down the real economy says the IMF.
GDP growth 2010: Though uncertain, the global economy is projected to recovery gradually in 2010, with global GDP growth picking up to 3%.
GDP growth in the advanced economies may have contracted by 2% in 2009 and may recover to 1% GDP growth in 2010.
GDP growth in the developing economies may have contracted from 6¼% in 2008 to 3¼% in 2009. It may recover to 4%+ in 2010.
GDP growth 2010 (IMF): China 9%, India 6.4%, USA 1.6%, 2%, Canada 2.1%, France 0.9%, UK 0.9%, Germany 0.3% and Italy 0.2%.
Euro Zone GDP growth was 2.6% in 2007, 1.0% in 2008, (2.0%) in 2009 and is expected to recover to 0.2% in 2010.
USA GDP growth was 2.0% in 2007, 1.1% in 2008, falling to (1.6%) in 2009 and is expected to recover to 1.6% in 2010. (IMF)
US economy & employment: Congress approved a $155B jobs bill including $50B in infrastructure spending and $79B for unemployment insurance and Medicaid.
China is targeting economic growth of 8% in 2010, the rate targeted for the last few years, a target it has yet to miss.
China: Manufacturing accounts for about 40% of China's economy and it will grow rapidly in 2010, by as much as 11%.
China is the world's third-largest economy and was boosted by a massive government stimulus in 2009 that will be continued through 2010.
China's manufacturing industry is over-reliant on exports, where economic recovery remained weak.
China’s domestic consumer demand will benefit from current fiscal and monetary stimulus measures, as part of the effort to reduce the dependence on exports.
Inflation is a determining cost factor in the cost of new aircraft.
Inflation was dampened due to sluggish real activity and lower commodity prices says the IMF>
Inflation declined in the advanced economies from 3½% in 2008 to a record low ¼% in 2009 &
headline inflation may edge up to ¾% in 2010.
Inflation in consumer prices: Some advanced economies are expected to experience a period of very low (or even negative) consumer price increases (IMF).
Inflation is expected to subside to 5¾% in developing economies in 2009 and 5% in 2010; down from 9½% in 2008 says the IMF.
Commodity prices: The slump in global demand has led to a collapse in commodity prices, especially oil, down 60% since its July 2008 peak.
Oil prices remain higher in real terms than during the 1990s.
Oil price baseline: The IMF's baseline petroleum price projection has been revised down to $50 from $68 a barrel for 2009 and $60 from $78 for 2010. (WEO Update, Nov 2009)
Metals prices have been marked down in line with recent developments by the IMF.
Metal price declines dampen growth prospects for a number of commodity-exporting economies but keep aircraft building cost inputs down.
Inflation: No risk of high US inflation in 2010 says the Federal Reserve.
Recovery: Some analysts are claiming a “V” shaped recovery is underway as U.S. production increases by 8% in six months.
Chinese industrial output surged in November to its fastest pace since June 2007, underlining brisk recovery from the global downturn.
Chinese output rose 19.2% from a year earlier, picking up from 16.1% in October.
Chinese imports rose 26.7% from a year earlier, marking a turnaround after 12 months of annual declines.
China is keeping its budgetary and monetary stance unchanged for now.
China’s Exports fell 1.2% from a year earlier, whereas analysts had expected them to turn to growth, breaking 12 straight months of falls.
China’s disappointing exports figure for November suggest the central bank may have to tighten policy by strengthening the Yuan.
China’s economy risks inflationary expectations setting in, as well as asset price bubbles in 2010.
Inventories:
US wholesale inventories rose 0.3% in October for the first time in more than a year,
ending a record 13 consecutive months of declines.
Trade: The US trade deficit fell to $32.9B, 7.6% lower than September's revised $35.7B figure, due to a weaker dollar.
Aircraft lead the way: US exports increased by 2.6% to $136.8B, led by civilian aircraft, cars, and computer chips.
Export values: The value of US exports was the highest since November 2008.
Deficit trend: The U.S. trade deficit is now expected to widen again in 2010 as the US economy recovers and consumers buy more imported goods.
Unemployment (a lagging indicators & key to airline recovery) fell to 10% in the USA in November from 10.2% in October. www.twitter.com/avreg
Unemployment report for November was the best since the recession began two years ago. www.twitter.com/avreg
Unemployment numbers: 15.4M people from a work force of 65M are looking for work. www.twitter.com/avreg
Employment: Those working part time in the USA (9.2M) increased by 26.3% in November vs. November 2008. www.twitter.com/avreg
Employment search: Those looking for work in the USA (5.6M) increased by 10.7% in November vs. November 2008. www.twitter.com/avreg
Disposable income: The average weekly wage for rank-and-file workers in the USA held steady at $622. www.twitter.com/avreg
Unemployment trends: In 2007, nearly 180M people were unemployed worldwide. www.twitter.com/avreg
Economic crisis: 2009 could add 50M new unemployed worldwide as a direct consequence of the global economic crisis. www.twitter.com/avreg
Unemployment worldwide: ILO warns that the number of unemployed could reach 230M in 2009 and that 45% of these workers are below the poverty line. www.twitter.com/avreg
Unemployment USA: In the USA, 15.4M (10% rate) are in the USA. www.twitter.com/avreg
Unemployment EU: The 27-nation EU reports that 22.5M people are unemployed. www.twitter.com/avreg
Unemployment across the 16 nations that use the euro has hit 15.5M (9.8%), its highest level since December 1998. www.twitter.com/avreg
Unemployment: There are 5M more people unemployed in the EU that a year ago. www.twitter.com/avreg
Unemployment Japan: 3.5M are unemployed in Japan (5.1% unemployment rate. www.twitter.com/avreg
November 2009
Recovery: Projections for 2010 Global GDP recovery are in the 2% range vs. The 7% growth experienced in recoveries from earlier deep recessions.
Recovery in Air Transport: An average global GDP growth rate in the 2% range for 2010 is inadequate for the airline industry to return to profitability.
OECD says economic growth and recovery are expected in 2010 in just about all world regions.
OECD global economic growth projections are too weak for sustained recovery in the global air transport market.
OECD (30-nation group) changed its growth forecast for the richer nations from 0.7% to 1.9% for 2010.
OECD jobless recovery? Unemployment may continue to rise in the EU and the USA until 2011.
OECD BRIC projections: 10% economic growth for China, 7% for India, 5% for Brazil and Russia in 2010.
September 2009
IMF raises global economic outlook with Asia leading the recovery.
GDP: The US economy declined by 0.7% Q2 (April-June) on an annualized basis vs. 6.4% in Q1 suggesting economy may be growing now.
Inflation is on the rise in the USA but 80% is accounted for by rises in energy prices.
August 2009
Inflation: Consumer prices hold steady easing inflation fears but suggest that slack remains in the American economy even as the recession bottoms out & some industries gear-up production.
JULY 2009
Recession near end: The U.S. recession may be ending but as aviation is a late cycle industry, the turnaround may be in mid-2010 or early 2011.
Recession, who decides? The National Bureau of Economic Research could declare the recession officially ended in Aug/Sept after 22 months.
Recession indicators turning: 7 of the 10 leading economic indicators have been reported for June and some of these may be revised dampening hopes for a recovery.
Economic upturn: Leading economic indicators are not a good indicator of an upswing in the economy, more a guide that a bottom has been reached.
Coincident economic indicators index has been volatile at best which suggest that the U.S. recession may not have ended yet.
Interest Rates: Three month LIBOR drops below 0.5% for the first time.
World trade volumes, a key driver for airline traffic, are expected to shrink 10% this year, the World Trade Organization said.
World exports of merchandise goods grew 15% in nominal terms in 2008 to $15.78Tn, the WTO said in the World Trade Report issued on Wednesday.
WTO reports that trade rose 2% in real or volume terms in 2008 after rising 6% in 2007.
Total world imports rose 15% to $16.12Tn, $345Bn more than exports, due to different ways of measuring imports and exports, the WTO data show.
Air Cargo: The severity of the slowdown was reflected in a fall of 23% in air cargo traffic in December 2008 vs. a year earlier, the WTO said.
The decline recorded in September 2001, when most of the world’s aircraft were temporarily grounded following the attacks on the United States, was
14%.
Exports: The share of developing country exports in world trade rose to a record 38% in 2008, the WTO said.
Germany retained its position as the world’s leading merchandise exporter in 2008, with exports of $1.47Tn, slightly larger than China’s $1.43Tn.
China’s export performance faltered at the end of 2008. Its exports to the United States rose only 1% over the whole year after growth of 14% in the 3rd quarter.
USA was the biggest importer in 2008, $2.17Tn of merchandise goods, 13.2% of the total, followed by Germany with 7.3% or $1.21Tn according to the WTO.
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AviationRegister E-Xpert Witness Journal
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Global developments presenting risks and rewards for the aircraft trading and financing market
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Headline News was last updated: January 2, 2010
Service
Guide.
M
September 2008
Understanding the impact
of the economy's ebb and flow
on the aviation industry
can be complicated.
SmartMoney web site makes it easier to understand because they sift through the economic data and select key economic indicators. Use MoneySmart's applet below to examine some of the most common statistics that economists watch. SmartWatch takes the gross domestic product, the key measure of the economy's overall output from quarter to quarter, and points out that it is a good indicator of where the economy's been. To gauge where it's headed, SmartWatch suggests you look at some of the other indicators, which show consumer purchasing trends, buyers' moods, export orders and job growth.
What the Indicators Mean:
Gross Domestic Product (GDP) (% change)
As the barometer of the nation's total output of goods and services, GDP is the broadest of the nation's economic measures. Despite a raft of problems in Asia, Russia and Latin America last year, the U.S. economy managed to post strong growth. According to SmartWatch the year 2008 may not be as kind. Consensus estimates are for U.S. GDP growth of 2.3%.
Producers Price Index (PPI)
The PPI measures the price of goods at the wholesale level. The PPI is tracked by the Bureau of Labor Statistics (BLS). Focusing on the aircraft, engine and spare parts index gives an indication of the inflationary pressur ein th eindustry and the economy generally.
Job Growth (In thousands)
A key to understanding consumer sentiment is job growth. Consumers feel more at ease when the job market is expanding. SmartWatch reports that when job growth contracts to 100,000 or less month to month, watch out — the economy could be headed for a slowdown. An estimated 159,000 jobs were lost in September 2008 accross most segments of the U.S. economy, double the job losses in July and August. These figures do not reflect those working part time but looking for full time work. October's job's figures are likely to be worse as employers lay off more people in response to the credit crisis. The unemployment rate in the USA has risen from 4.7% to 6.1% in a twelve month period. These are indicators that do not bode well for the U.S. and global economies.
Earnings Growth Rates
Historically, earnings have been a key factor in determining share prices. Lately, the correlation has been less pronounced, but the numbers still give investors a sense of the economy's strength.
Institute for Supply Management
The ISM's index is viewed as a solid measurement of whether the manufacturing economy is contracting or expanding. Each month, more than 400 companies provide the ISM with data on changes in production, new orders, new export orders, imports, employment, inventories, prices, lead times and the timeliness of supplier deliveries. SmartWatch explains that by compiling the responses, the ISM is able to piece together a national economic picture. An index reading above 50% indicates the manufacturing economy is generally expanding; a reading below 50% means it's contracting.
Export Index
The National Association of Purchasing Manager's (NAPM) produces repors compiled from data supplied by association members that measure new export orders. A measure below 50 means orders are declining.
NAPM index.
The National Association of Purchasing Manager's defines the NAPM Index as "a measure of the health of the manufacturing sector, and more generally the overall economy, calculated by surveying purchasing managers for data about new orders, production, employment, deliveries, and inventory, in descending order of importance. It is based on a survey of over 250 companies within twenty-one industries covering all 50 U.S. states, and it is released on the first business day of the month at 10 am EST and reflects the previous month's data. The total index is calculated based on a weighted average of the following five sub-indexes, with weights in parentheses: new orders (30%), production (25%), employment (20%), deliveries (15%), and inventories (10%). The NAPM is one of the first comprehensive economic releases of the month, typically preceding the employment report. Though it covers only the manufacturing sector, it can often provide accurate hints regarding the tone of subsequent releases. During periods of inflation concerns, the prices paid and vendor deliveries indexes often determine the bond market's reaction to the report. A reading over 50% indicates that manufacturing is growing, while a reading below 50% means it is shrinking. According to NAPM "the NAPM index is also thought to be an early indicator of inflationary pressures."
Consumer Confidence
The Conference Board maintains this index of consumer sentiment based on monthly interviews with 5,000 households. After hitting historical highs last summer, the index has been falling.
Weekly Retail Sales
The Census Bureau reports retail sales figures monthly. SmartWatch suggests that if you want to know how sales are going before that, take a look at LJR Redbook's retail averages. The numbers are based on interviews with managers at a wide range of stores. Retailers typically plan for 5% year-to-year growth in same-store sales. Lately, the figures have been just shy of those levels.
Monthly Retail Sales (% change)
For the big picture in retail sales, Smartwatch suggests that you check out the monthly reports from the Census Bureau and watch for changes in the trend line. After falling this summer, sales in the USA have rebounded, indicating that consumers are still in a generous mood at least up until mid-September!
Relationship between world economic growth and global traffic demand growth (IMF, WEFA, ICAO Reporting.(Figure 9-1, Aviation and the Global Atmosphere,Special Report, ICPP after Figure III-A-1 in Albritton et. al, 1997).
Economic profile 2000-2009: U.S. economic output rose at its slowest rate of any decade since the 1930s.
Business cycle: The 1990s ended near the top of a global stock market and investment bubble. It ended near the trough of a global recession for the period 1999 through 2009.
Business cycle: 1999-2009 was the first decade where a U.S. working-age household ended up worse off at the end of it than the beginning.
Bubbles: The stock market bubble, the housing bubble, and the credit bubble characterized the period between 1999 and 2009.
Jobs growth in the decades between 1940 and 2000 was never less than 20%.
Unemployment: Unemployment rate in the USA is at 10.2% vs. a peak of 6.3% following the previous downturn.
Job creation: Economists expect the job market to turn around early in 2010 and begin creating jobs.
Income: Middle-income households in the USA made less in 2009 than they did in 1999 when adjusted for inflation.
Income: From 2000 to 2009 was the first decade that US median incomes fell since the 1960s, when these figures were compiled first.
Debt: Federal Reserve data shows that total household debt rose 117% from 1999 to its peak in 2008, money spent on real estate and consumption.
Net worth: The average American’s home, retirement funds and other assets minus debts declined vs. sharp gains in every decade from 1950 to 1999, adjusted for inflation.
