PP 7767/09/2010(025354)

Economic Highlights
Global
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MARKET DATELINE

9 September 2010

1 Widespread Signs Of A Deceleration In The US

Economy, But The Fed May Not Make A Major Move
2 US Consumer Credit Fell By A Larger Magnitude In
July
3 Japan’s Core Machinery Orders Picked Up M-o-m In
July

Tracking The World Economy...

Today’s Highlight

Widespread Signs Of A Deceleration In The US Economy, But The Fed May Not Make A Major Move

The Federal Reserve’s Beige Book indicated that the US economy continued to grow during the period mid-July through
the end of August, but with widespread signs of a deceleration compared with preceding periods. Consumer spending
appeared to increase in general but consumers were still not keen to make non-essential purchases. Activities in
professional and other non-financial services were largely stable, while the travel and tourism sector picked up due partly
to seasonal factors. Manufacturing activities, on the other hand, expanded at a more moderate pace during the period.
Similarly, home sales slowed further following an initial drop after the expiration of the homebuyer tax credit at the end
of April. As a result, construction activities also weakened during the period. In addition, demand for commercial real
estate remained quite weak but showed signs of stabilisation in some areas. Loan demand was generally lower but there
were some modest improvements in credit quality. Upward price pressures remained quite limited for most categories
of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials.
Similarly, wage pressures were limited.

The report underscores the Fed’s view that while the economic recovery from the worst recession in seven decades is
slowing down, it is not relapsing into a contraction. The ‘Beige Book’ is a summary of economic activity prepared for
use at the central bank’s Federal Open Market Committee (FOMC) meetings. The next meeting is on 21 September. As
a whole, the assessment suggests that the Fed will likely keep its key policy unchanged at 0-0.25%, while the size of
its quantitative easing will likely be maintained as well in the near term. The Fed has, on 10 August, shifted its policy
towards a loosening bias by saying that it would roll over US Treasury securities and reinvest proceeds from mortgage-
related securities as and when they mature. The move implies that the Fed would keep the size of its quantitative easing
to promote economic growth.

Peck Boon Soon

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

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 9 September 2010
The US Economy

Consumer Credit Fell By A Larger Magnitude In July

◆ US consumer credit fell by a larger magnitude of US$3.6bn or at an annual rate of -1.8% in July, compared
with a decline of US$1.0bn or -0.5% in June. This was the sixth straight month of decline, suggesting that consumers
are still deleveraging on the back of high unemployment and a recovery in consumer spending will likely be gradual
in the months ahead. As it stands, the economy lost 8.4 million jobs in the recession that started in December 2007,
and the unemployment rate remains close to the 26-year-high of 10.1% reported last October. Also, the housing
market experienced a renewed weakness after the end of a government tax credit for purchases in April and
foreclosures have pushed down prices. The sharper drop was reflected in a sharp slowdown in non-revolving debt,
which eased to US$0.8bn in July, from +US$4.4bn in June. Non-revolving credit include loans for automobiles and
mobile homes. The Fed’s report does not cover borrowing secured by real estate. Similarly, revolving debt such as
credit cards continued to fall, albeit by a smaller magnitude of US$4.4bn in July, compared with -US$5.2bn in June.

Asian Economies

Japan’s Core Machinery Orders Picked Up M-o-m In July

◆ Japan’s core machinery orders, excluding volatile orders for ships and orders placed by electric power companies,
grew at a faster pace of 8.8% mom in July, compared with +1.6% in June. This was the second consecutive
month of picking up, indicating that businesses are still investing as there were encouraged by a sustained increase
in overseas demand, albeit at a more moderate pace. Still, business spending may come under threat by the surge
in yen to a 15-year high against the US dollar recently that has resulted in a lot of uncertainties. Indeed, about half
of Japan’s manufacturers say that the surge in yen is hurting their sales, according to a survey. Yoy, Japan’s core
machinery orders rebounded to increase by 15.9% in July, the strongest growth thus far this year and from -2.2%
in June.

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