PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

23 July 2010

1 US Economic Growth Will Likely Slow Down In 2H 2010

2 US Existing Home Sales Fell In June

3 Euroland’s Manufacturing Services Activities Picked Up

In July And Industrial Orders Rebounded M-o-M In May

4 Japan’s All Industry Index Slowed Down In May

Tracking The World Economy...

Today’s Highlight

US Economic Growth Will Likely Slow Down In 2H 2010

The US Conference Board’s index of leading indicators, which provides early signal on the direction of the economy over
the next three to six months, fell by 0.2% mom in June, after a rebound to +0.5% in May. This was the second month
of decline in three months, suggesting that the US economic recovery is losing momentum. The decline was reflected
in drops in average workweek and the pace of deliveries as well as a slowdown in contribution from consumer expectations,
money supply and interest rate spread. These were, however, mitigated by a pick-up in consumer goods orders and
building permits as well as an improvement in orders of non-defence capital goods, indicating that the US economy will
likely remain resilient despite some weakness. Meanwhile, the leading index’s six-month annual rate of change slowed
down to 5.3% in June, from +8.1% in May and a high of +11.6% in December last year. This was the third consecutive
month of easing, suggesting that the US economy will likely grow at a more moderate pace in the 2H of the year.

In fact, the Fed said that while it plans for the exit from the extremely easy monetary conditions, it also recognises that
the economic outlook remains unusually uncertain and is prepared to take further policy actions if needed to ensure
recovery is sustained in a context of price stability. On 22 July, the Fed also urged Congress not to end its stimulus
spending in the near term, as the fragile economy still needs the government’s support to strengthen the recovery and
help reduce unemployment. As it stands, the housing market is showing renewed weakness in the last two months,
following the end of the government’s tax credit incentive in April. It may struggle for another few months before it could
stabilise in the absence of the government’s support.

As a whole, consensus expects US real GDP to expand at a more moderate annualised rate of around 2.8% in 2H 2010,
after a rebound to +3.3% in the 2Q and from +2.7% in the 1Q. For the full-year, real GDP, however, is projected to
grow by 3.1% in 2010 before easing to +2.90% in 2011 and compared with -2.4% in 2009.

The US Economy

Existing Home Sales Fell In June

◆ US existing home sales fell by a larger magnitude of 5.1% mom or at an annual rate of 5.37 million
units in June, compared with -2.2% in May and +8.0% in April. This was the second consecutive month of
decline, indicating that buyers were not in a hurry to buy houses following the expiry of the government’s tax credit

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 23 July 2010

incentive of as much as US$8,000 in April. As a result, the existing home sales slowed down to 9.8% yoy in June,
from +19.2% in May and a recent high of +23.2% in April, suggesting that home sales are losing momentum. A
slowdown in existing home sales pushed the supply of new homes for sales to 8.9 months of stocks in June, the
highest in 10 months and from 8.3 months of stocks in May. Meanwhile, the median existing home prices rose
by 5.2% mom in June, compared with +1.3% in May. Yoy, the median prices of existing homes inched up by 1.0%
in June, after falling by 0.1% in May, indicating that house prices remained weak. As a whole, with the expiry
of the government’s tax incentive, home sales will likely struggle to recover in the months ahead.

The Euroland Economy

Manufacturing Services Activities Picked Up In July

◆ Euroland’s preliminary purchasing manager index (PMI) for the manufacturing sector released by the Markit
Economics in London rebounded to 56.5 in July, after easing to 55.6 in June. This was the highest level in three
months, indicating that the sector’s activities grew at a faster pace during the month and it remained resilient
amidst signs of a slowdown in the global economy and concerns over the sovereign debt problem in the region.
Similarly, the PMI index for services sector inched up to 56.0 in July, from 55.5 in June but lower than 56.2 in
May. This suggests that the region’s services activities expanded at a faster pace in July. As a result, the
composite index for both manufacturing and service industries rose to 56.7 in July, from 56.0 in June
and compared with 56.4 in May. This was the highest level in three months, indicating that economic activities
in the Euroland will likely remain resilient despite a moderation in growth.

Industrial Orders Picked Up M-o-M In May

◆ Euroland’s industrial orders grew at a faster pace of 3.8% mom in May, compared with +0.6% in April.
This was the fourth consecutive month of increase, indicating that industrial activities are likely to remain resilient
in the months ahead. The pick-up was due to a stronger growth in orders for durable consumer good. This was
aided by a rebound in orders for capital and non-durable consumer goods, pointing to resilient business and
consumer spending. Orders for intermediate goods, on the other hand, remained stable during the month,
indicating that exports will likely hold up in the months head. Yoy, industrial orders grew at a stronger pace of
22.7% in May, compared with +21.9% in April and +20.5% in March.

Asian Economies

Japan’s All Industry Index Slowed Down In May

◆ Japan’s all industry index slowed down to 0.2% mom in May, from +1.9% in April. This was the second
month of increase in three months, indicating that economic activities in the country remained resilient in
the 2Q despite showing signs of weakness. The slowdown was on account of a decline pick-up in services
activities, which fell by 0.9% mom in May, compared with +2.4% in April. This was made worse by a slowdown
in manufacturing activities, which eased to 0.1% mom in May, from +1.3% in April and +1.2% in March, as exports
softened. These were, however, mitigated by a pick-up in construction and government activities, which rebounded
to 8.9% and 0.9% mom respectively in May, from the corresponding rates of -4.4% and -0.8% in April. Yoy, all
industry index eased to 3.4% in May, from +4.0% in April and +5.0% in March. This was the second consecutive
month of slowing down, indicating that Japan’s economic activities are losing momentum.

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