1. Jeffrey Timmermans Global Economic Journalism Class 4: Economies & Indicators - II

2. Covering indicators: advance prep ✤ Always keep updated schedule of data announcements ✤ Note which specific measurement of key ✤ Before each major announcement, find out the expectations ✤ Conduct a poll of economists or other analysts ✤ Get your story template ready (plug in comparison data, expectations) ✤ Make appointments to speak with economists/analysts right after announcement

3. Covering GDP: a framework Gross Domestic Product = Consumption + Investment + Government spending + (exports - imports) GDP = C + I + G + (E - I) or

4. Writing about GDP ✤ Usually, it’s best to use seasonally adjusted quarter-on-quarter growth in GDP in percentage terms ✤ This shows the current momentum of an economy, without seasonal peaks & troughs ✤ Compare with the same figure in the previous quarter ✤ Be wary of revisions of earlier figures! ✤ Will the government be issuing a forward-looking forecast?

5. Japan grows but stays fragile By Mure Dickie in Tokyo and Robin Kwong in Taipei 21 May 2010 Japan's economy grew a relatively robust 1.2 per cent in the first quarter but full recovery from the worst postwar slump depends on demand from foreign export markets and a rebound in private consumption that may be faltering. Preliminary gross domestic product data released yesterday were equivalent to an annualised growth rate of 4.9 per cent - below economists' forecasts but still an refutation of fears last year that the economy might stall in early 2010 or suffer a "double dip". Naoto Kan, the finance minister, said the data reflected a "solid economic recovery" but made clear it was too soon to relax. "We need to watch very closely to see if this is an autonomous recovery," he said. It can be dangerous to read too much into Japan's preliminary estimate of GDP, a statistic often revised heavily. In the third quarter of last year, for example, the economy was initially thought to have expanded 1.2 per cent but was later judged to have contracted and is now recorded as having expanded 0.1 per cent. However, yesterday's first-quarter estimate left no doubt of Japan's continuing reliance on external demand for growth, with net exports of goods and services accounting for 0.7 percentage points of the 1.2 per cent quarter-on-quarter expansion. The Japanese data offered some signs that Japan's recovery was broadening, with growth in all categories of public demand, including residential investment, which declined sharply throughout 2009. "Rising exports and production have spilled over to domestic demand," wrote Kiichi Murashima, economist at Citigroup Global Markets, in a research note. But the pace of quarter-on-quarter growth in private consumption softened considerably, falling to 0.3 per cent - its weakest performance since the first three months of last year - suggesting a waning effect of government stimulus efforts. Much could now depend on the impact on consumption of a monthly Y13,000 ($145, €118, £102) child allowance introduced by the Democratic party-led government. Some analysts say many parents are likely to save rather than spend the windfall. Change Cause Expectations Context Comment Future

6. Consumer Price Index ✤ Based on the prices of a “basket” of goods & services ✤ Typically, only focus on % change in index, rather than the absolute index ✤ Baseline for index (index=100) is set at an arbitrary point in time

7. Problems with CPI ✤ Actual index base year is arbitrary (Oct. 2004-Sep. 2005 in HK) ✤ Different countries have different “baskets” ✤ “Baskets” change over time, even in the same country ✤ The quality of goods changes over time ✤ You get far more computer for the price now than 10 years ago ✤ Consumers will substitute pricey goods with cheaper ones

8. CPI: Core vs. non-core ✤ Core CPI: excludes “volatile” components such as food and energy ✤ But definition of “core” can vary from country to country ✤ Non-core CPI: includes all index components Source: Thumbcharts Change in U.S. CPI 1958-2011

9. Writing about CPI ✤ Focus on the percentage change, rather than the nominal index level ✤ Use CPI as a proxy for the inflation rate ✤ Using core on non-core depends on your audience ✤ Core inflation is used to determine economic policy responses ✤ Non-core is better to show effects of inflation on consumers

10. Japan Consumer Prices Fall 1% By Tomoyuki Tachikawa 1 October 2010 TOKYO -- Japan's consumer prices fell in August for the 18th consecutive month, government data showed Friday, suggesting no end in sight for a deflationary trend that has been undermining the broader economy, and providing further impetus for the Bank of Japan to take additional monetary easing measures soon. The country's core consumer price index, which excludes volatile fresh food prices, fell 1.0% from the same month a year earlier, the Ministry of Internal Affairs and Communications said. The result was in line with the median forecast in a poll of private economists. The latest data show that the pace of decline in the core CPI is easing up, with the figure having fallen 1.1% in July and 1.0% in June compared with a recent low of 1.5% in April. This suggests that a mild recovery in the economy is propping up domestic demand and preventing prices from falling further. But analysts warn that deflation may accelerate as the yen stays strong with the outlook for the U.S. and European economies uncertain, dragging on Japan's export- reliant economy and reducing the prices of oil, food, metals and other commodities the country buys from overseas. Persistent price declines usually eat into corporate profits, which could prompt firms to scale down operations and cut payrolls, increasing the risk that worsening income and employment conditions will make consumers reluctant to spend. That in turn should raise the possibility of Japan's economy entering a lull in the near future. "As long as deflation continues and the yen rises, falling corporate profits could keep putting downward pressure on the economy," said Takeshi Minami, chief economist at Norinchukin Research Institute. "It's very likely for the Japanese economy to stall down the road." Tokyo policymakers have also become more concerned over the future course of Japan's economy. Change Cause Expectations Context Comment Future

11. CPI in Hong Kong ✤ CPI (A): basket based on expenditure patterns of 50% of households, namely those with low income (HK$4,400-$17,300 currently) ✤ CPI (B): based on the habits of the next 30% of households by income (HK$17,300-$31,100) ✤ CPI (C): based on the next 10% (HK$31,100-$67,900) ✤ Composite CPI: includes all of the above, or 90% of HK households ✤ This is usually the headline number

12. DJ UPDATE: HK March CPI Up 4.6%; Inflationary Pressures Likely To Rise 583 words 22 April 2011 By Chester Yung and Fiona Law HONG KONG (Dow Jones)--Hong Kong's consumer prices rose at their fastest pace in two and a half years in March, and further increases are likely as inflationary pressures grow both at home and abroad, the government said Thursday. Hong Kong's headline consumer price index rose 4.6% in March from a year earlier, the Census and Statistics Department said Thursday, accelerating from February's 3.7% rise to the fastest pace since the CPI rose 4.6% in August 2008. March's reading was also above the median 4.1% rise forecast by 11 economists surveyed earlier by Dow Jones Newswires. Underlying CPI, which excludes the effects of government relief measures, rose 4.4% in March from a year earlier, the government said, also up from February's 3.6% increase. A government spokesman said in a statement increases in private residential rents and rising food prices will likely continue to add to inflationary pressure in the coming months, while 'the hike in the tobacco duty and higher fuel costs also contributed somewhat to the increase in inflation (in March).' Private housing rental rates rose 4.9% in March, higher than February's 4.1% rise. Property prices in the territory rose around 24% last year, following a 30% surge in 2009, but rents haven't kept pace because they are normally locked in by contracts that cover a year or more. Public and private rents account for about one-third of Hong Kong's CPI basket. Food prices rose 6.3% on year in March, significantly higher than the 5.0% increase in February. Hang Seng Bank Senior Economist Irina Fan said the major drivers of inflation in March--a surge in global food prices and strong domestic demand--are unlikely to ease in the near term. 'Imported inflation is weighing in, especially when other Asian currencies are rising and the Hong Kong dollar is unchanged and pegged to the U.S. dollar,' she said, adding she expects the city's CPI rise to reach 4.7% or even higher for the full year. The government has said it expects the CPI to rise 4.5% in 2011, above the 2.4% increase in 2010, due to the higher rents and import prices. Change Cause Expectations Context Comment Future

13. Some other measures of inflation ✤ Wholesale Price Index (WPI): measures prices on a wholesale level ✤ Sometimes considered a leading indicator for CPI, but only a fraction of wholesale goods are inputs in final consumer goods ✤ GDP Deflator: used to remove the effects of inflation from GDP to get “real” economic growth ✤ Basically, CPI with a much bigger basket: all final newly produced goods & services

14. Unemployment Rate ✤ Tracks the number of people in the labor force who don’t have jobs ✤ How do you define “labor force”? ✤ Usually expressed in percentage terms rather than an absolute number ✤ Full employment is a bad thing!

15. Problems with unemployment data ✤ Based on a household survey ✤ Doesn’t include people who have given up looking for work ✤ Definitions of “unemployment” vary among countries ✤ Japan’s definition is more restrictive than the U.S.’s

16. Grim Milestone as Jobless Rate Tops 10% By Sudeep Reddy 9 November 2009 The unemployment rate last month soared above 10% for the first time since the early 1980s, a milestone likely to weigh on consumer confidence and stir new efforts in Washington to spur job creation. Some 558,000 people joined the ranks of the jobless in October, sending the rate to 10.2% and the tally of officially unemployed Americans to 15.7 million, the Labor Department said. The 10% figure could overshadow last week's news that the economy began growing again this summer after a long contraction. "Ten percent is a terribly important number," Democratic pollster Peter Hart said. "It is not only the 10.2% of the people who are unemployed, it is the number of people who are reliant on that 10%. It's probably the other 20% who say, 'I'm worried, I'm uncertain, I'm afraid about this, I worry about my job.'" The report intensified pressure on the government to provide more unemployment relief and spur hiring. President Barack Obama on Friday signed an extension of jobless benefits for up to 20 weeks. He said his administration was considering new investment in infrastructure, as well as tax cuts for businesses, to stimulate employment. "History tells us that job growth always lags behind economic growth," Mr. Obama said, "which is why we have to continue to pursue measures that will create new jobs." The unemployment news initially sent stocks lower. But the market ended up modestly on hopes that job growth would return by early next year. The payroll figures weren't entirely bleak. The survey of employers showed fewer jobs lost in October than in previous months; figures for August and September were revised up. The temporary employment sector, seen as an indicator of future employment, gained 34,000 jobs to mark the third straight month of increases. The rest of the business and professional- services sector grew, as did education and health jobs. Factory overtime hours increased. Still, October marked only the second time since recordkeeping began in 1948 that the jobless rate topped 10%. It stayed that high for 10 months in the early 1980s, peaking at 10.8% in November and December of 1982. Economists expect the unemployment rate to continue rising at least until spring, even as gross domestic product resumes growing. The 10.2% rate "reinforces a view on Main Street that recovery is spelled j-o-b-s and not G-D-P," said Stuart Hoffman, chief economist at PNC. "We're in a sort of economic purgatory where we see growth in productivity and growth in output, and even some growth in consumer spending. But it hasn't been sustained long enough for businesses to create jobs." Sectors slammed hardest in the recession continued to suffer. Manufacturing lost 61,000 jobs, more than in the prior three months. Construction employment fell by 61,000, near the pace of prior months. Retail declined by 40,000 jobs. A measure of unemployment that includes people who have stopped actively searching for work, or are working part-time because they can't find full-time work, hit 17.5% in October -- up half a percentage point from September. Tom O'Pray, 36 years old, of Rockville, Md., lost his job as a hotel waiter a year ago and spent six months looking for a full-time position. Mr. O'Pray applied to as many as four openings a week as an executive assistant -- a prior occupation of his -- but stopped looking in April. "There are so many overqualified applicants that I never made it to the top of the stack to ever get an interview," Mr. O'Pray said. He went to the movies with a friend and -- "on a lark," he said -- asked the theater manager if he had jobs. There was a part- time position, paying $7.85 an hour, that included concession sales and cleaning restrooms. "I'd prefer another office job," he said. "I'm working harder, for less money, than I ever have in my whole life." The economy's course in coming months will depend on how well it can transition from growth backed by government support - - such as the $787 billion stimulus package -- to an expansion built on the private sector.

17. Consumer/Business Confidence Index ✤ A leading indicator of short-term consumer spending or investment by businesses ✤ Often presented as a diffusion index ✤ How many respondents are confident minus how many are pessimistic ✤ A reading of above 50 indicates optimism ✤ Compare to previous month/quarter for changes in sentiment

18. Problems with confidence indices ✤ Can have relatively large margin of error ✤ How big is the survey? ✤ Can mask dramatic changes in consumer or business sub-groups ✤ In the case of the tankan, check the sub-index for smaller businesses

19. Some other indicators ✤ Consumer Confidence ✤ Balance of Payments, including Trade Balance ✤ Industrial Production ✤ Retail Sales ✤ Tourist Arrivals ✤ Home Sales/Land Sales