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By HaleStewart May 1, 2015 1:12 pm
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International Economic Week in Review: Everyone Releases GDP, Edition

     Before getting into the detailed numbers, here is a brief overview of the major OECD countries:

  1. The EU news continues to point to an uptick in activity
  2. The UK, while still growing, may be seeing growth decrease a bit as a result of the strong Sterling
  3. The US and Canada are still in weak patches
  4. Japan can’t quite shake off its period of slow growth


     The biggest news from the US was the GDP miss.  As reported by the BEA:

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis.  In the fourth quarter, real GDP increased 2.2 percent.


The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

Analysts gave a number of reasons for the miss, including: the strong dollar hurt exports, a bad winter slowed the NE, the west coast port strike slowed imports and the oil slowdown added to the drop in business investment.  The Federal Reserve – which maintained its current policy this week -- considers this slowdown temporary:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

Obviously, only time will tell if they are right.  But, as I noted earlier this year, there are sufficient warning signs to be concerned entering the second quarter.     

     Like the US, the Bank of Japan kept rates at their current, ultra-low 0%-.1%.  Other news was either great or terrible.  Inflation’s Y/Y rate was 2.2%, with the core rate now at 2.3%.  This is encouraging, because it indicates the BOJ’s QE program is partially accomplishing one of its objectives.  On the negative side were retail sales which decreased 9.7% Y/Y.  More concerning is this is the third month in a row of accelerating negative readings:

Another troubling release was industrial production’s 1.2% Y/Y decline.  Overall, Japan hasn’t yet been able to escape its two decade long economic malaise.

     The UK growth figure of .3% disappointed the market.  The report noted that only one economic sector advanced: “Output increased in services by 0.5% in Quarter 1 (Jan to Mar) 2015. The other 3 main industrial groupings within the economy decreased, with construction falling by 1.6%, production by 0.1% and agriculture by 0.2%.”  This is in line with the UK’s post-recession growth as shown in this chart from the report:

Notice that services is responsible for the entire advance since the end of the recession; in contrast, construction, production and agriculture are all operating at sub-optimal levels. 

     Canada’s GDP was 0% for February, which, considering the country’s reliance on oil, is a decent figure.  Retail trade’s 1.5% increase was a primary contributor.  However, heavier industries are clearly taking a hit: manufacturing declined .7% in January and .8% in February.  Oil support services declined 10.8% and 15.4%, respectively.  The release contained the following chart which shows the contributions from various sectors:

     And finally, we have news from the EU, which was still positive.  First, inflation returned to a 0% Y/Y reading, after four months of negative numbers.  In addition, several sentiment readings maintained their recent increases.  Business climate increased slightly and economic sentiment was unchanged.  While the news flow was light, the numbers that were released were certainly encouraging.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer  


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