(for items in Forecasts of Upcoming Data 15.8.10 -27.8 .10)
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0.5% inflation in July 2010
The inflation outcome for July 2010 – 0.5% - was within our forecast range of 0.5-0.7%. Most other analysts expected the outcome to be closer to the top of this range or even above 0.7%. Housing prices continued to increase faster than overall inflation in July – by 1%.
Purchasing Managers' Index continues to show contracting activity in July
We expected the Purchasing Managers' Index to remain below 50 in July (signifying contracting manufacturing activity) and it did so remain, for the 3rd consecutive month..
GDP growth accelerates to 4.7% in Q2/10
Our forecast was completely off track here. On the basis of partial indicators of economic activity – such as the Purchasing Managers' Index and the Bank of Israel's State-of-the-Economy Index, which had been showing slower growth in Q2/10, we expected 2nd quarter GDP to show slower growth, in the range of 2-2.5%. But in fact, not only did GDP growth not slow in the 2nd quarter but it actually accelerated to an annualized 4.7%, the fastest rate of growth since the final quarter of 2007. The reasons for the difference between GDP growth in Q2/10 and the increase in activity based on partial activity indicators are not clear. The Purchasing Managers' Index continued to show contracting activity in July 2010 (see above).
Faster trend growth in industrial production in June
We had expected a slower trend growth of industrial production in June – in the range of 0.4-0.5%, compared to 0.7% in May, but instead June trend growth accelerated to 0.9% in June. In the first half of 2010 as a whole, industrial production grew by 10.7% compared to the parallel half of 2009. .
Trend growth of commerce and services turnover slows to 0.1% in June
The increase in turnover in the commerce and services sector has been slowing steadily since early 2010, from 1% in January to 0.3% in May. Our forecast was that the June increase would remain at the May rate but in fact, the slowdown in growth continued in June – to just 0.1%.
Slightly faster July increase in the State-of-the-Economy Index
The monthly increase in the Bank of Israel's State-of-the-Economy Index slowed significantly from April 2010 and remained fairly limited throughout the 2nd quarter of 2010. – at a monthly average 0.3%, compared to an average above 0.6% in the 2nd half of 2009. We forecast a continuing slower increase in July 2010, and the outcome was indeed an increase of just 0.2% in that month.
Chain store retail sales increase by 0.3% in July
Our forecast was that the trend of chain store retail sales would increase in July by a similar – limited – rate to the June increase of 0.3%, and this was indeed the July outcome.
Bank of Israel interest rate remains unchanged for September
We were right here as well, expecting the Bank of Israel to leave its interest rate unchanged for September – at 1.75%. The central bank's decision at the end of August was exactly this. Three reasons were brought for the decision: a) Inflation in Israel is currently fairly restrained; b) the Israeli economy is continuing to expand, but there is some uncertainty regarding the continuation of the expansion; c) central bank interest rates in other major economies remain very low.
Trend increase of tourist hotel nights continues to slow in July
As we expected, the trend increase in tourist hotel nights continue to slow in July – to 1.3%, compared to 1.8% in June and 2.7% monthly in March-April. This slowdown reflects the tendency of incoming tourism to stabilize in recent months.
