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By HaleStewart October 8, 2013 12:14 pm
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Euro Area Continues To Show Improvement

The euro region was in a recession from the first quarter of 2012 through the first quarter of 2013 (five quarters total).  During this time, the region grew between -.1 and -.5.  The recession formally ended in the second quarter of 2013 when it grew at a .3% annual rate.  And recent economic numbers add further evidence that the nascent recovery is gaining momentum.

Perhaps the best news comes from the unemployment numbers which appear to have peaked.  In May and June the Euro area unemployment rate was 12.1%, while in July and August the number was 12%.  While it may seem hard to get excited about unemployment stabilizing at a high rate, remember this is a lagging index: it rises and falls after economic activity. Therefore, a peak in unemployment would mean that the underlying economy has in fact stopped contracting and is starting to grow again.

Adding further evidence to the growing economy thesis is the trajectory of retail sales, which increased .7% in August.  Although sales are still at low historical levels, they are in a clear uptrend trend since November of 2012.  And in the last six months they have only contracted in two months while increasing at solid rates in three (they increased 1.5% in May, .5% in July and .7% in August).

Manufacturing is growing again as well; the Markit economic survey released on October 1 reported the overall level of manufacturing printed at 51.1 (a reading above 50 indicates the sector is expanding while a reading below 50 indicates the sector is contracting).  The report contained the following analysis:

“An improvement in Eurozone manufacturing business conditions for a third straight month in September sends a reassuring signal that the sector is providing an all-important lift for a region that has been besieged by recession.

“Even manufacturers in the region’s periphery are reporting better demand for their goods. Orders rose for the fourth month running in Spain and for the third successive month in Italy and Ireland. In the regions core, orders likewise rose for a third month running in Germany and the Netherlands and even the recent laggard France saw the first upturn in demand for just over two years.”


Like the manufacturing sector, services are also expanding with the latest Markit reading for the Eurozone coming in at 52.2.  In addition, the composite reading (which combines the manufacturing and service sector readings) for France, Spain and Italy are all in positive territory and trending higher, while the reading for Germany is still printing about 50 indicating expansion.

We haven't had enough data to conclude the eurozone is firmly in an uptrend.  But the data is encouraging.

 

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