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By HaleStewart May 8, 2015 12:28 pm
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International Economic Week in Review: A General Tenor of Malaise, Edition

     Before looking at country level information in detail, here are quick summaries of the countries that reported this week:

  • The EU continues to show weak improvement.
  • The US, after several months of weaker than desired data, had some decent numbers.  But this doesn’t mean the weakness has passed.
  • Canada showed some improvement, which is fortunate considering their large exposure to the oil market
  • Australia’s central bank lowered rates, acknowledging the weakness in their economy
  • China’s numbers continued to point to a slowdown

     The biggest news of the week came from Australia, where the RBA cut rates to 2%.  The policy announcement contained the following explanation:

In Australia, the available information suggests improved trends in household demand over the past six months and stronger growth in employment. Looking ahead, the key drag on private demand is likely to be weakness in business capital expenditure in both the mining and non-mining sectors over the coming year. Public spending is also scheduled to be subdued. The economy is therefore likely to be operating with a degree of spare capacity for some time yet. Inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

Australia is trying to make the transition from an economy that derives growth from raw material exports to China to one more centered on consumer growth.  Unfortunately, the transition has been more difficult than anticipated.  Other data released last week confirmed the RBA’s move.  Unemployment – which has been slowly ticking up for the last year – increased from 6.1% to 6.2%.  Retail sales increased a fairly standard .3% M/M while the AIG construction index decreased from 50.1-47.    

     Markit surveys dominated the news from the EU last week.  The final manufacturing number from the region was 52.1.  German manufacturing decreased from 52.8-52.1, Italy’s was up .5 to 52.8 and France's dropped .8 to 48.  Taken together, these numbers indicate EU manufacturing is increasing at a moderate rate.  The EU composite numbers (which combine manufacturing and service numbers) also point to positive developments: the EU composite number decreased slightly from 54-53.9, the French number was down .9 to 59.6 and Germany’s dropped from 55.4 to 54.1.  Finally, retail sales were down .8% M/M.  These numbers indicate the case for a continued EU recovery continues.

     Canada received much needed positive news, starting with a decrease in unemployment from 6.9%-6.8%.  However, this number has been fluctuating between the 6.8%-7% level for the last year, meaning the slight drop could be seen as mere statistical noise.  

The Ivey PMI had a surprising jump from 47.9-58.2.  But, using a 3-month rolling average to smooth out the variations shows only a slight increase last month, which is probably a fairer representation of overall sentiment:

Finally, building permits increased 11.6%, which can be seen as a demand rebound from a strong winter.

       In contrast to the tenor of recent US economic releases, last week’s numbers were positive, with a manufacturing employment caveat.  First, the ISM services index increased from 56.5 – 57.8.  The anecdotal comments support the general positive tone, save for news from the oil patch:

◾"Avian Influenza is causing concerns, but has not directly impacted our operations." (Agriculture, Forestry, Fishing & Hunting)

◾"Clients in oil refinery sector have reduced their capital spending due to declining oil prices." (Professional, Scientific & Technical Services)

◾"Definite signs of economic growth in most markets serviced. New construction and capital spending apparent." (Finance & Insurance)

◾"Still have backorders/shortages of IV solutions." (Health Care & Social Assistance)

◾"Pork prices are lower due to abatement of the PEDv virus. Chicken and beef prices are up due to higher demand and output. Corn prices and oil for gasoline have been the bright spot keeping prices from taking off higher." (Accommodation & Food Services)

◾"Overall we see positive trends; spending has improved." (Retail Trade)

◾"Low fuel prices continue to have a positive impact." (Transportation & Warehousing)

◾"Business remains strong for this time of year and looks good for the next 12-18 months." (Wholesale Trade)

After several weak readings, monthly employment numbers were positive, with a headline number of 223,000 and average hourly earnings up 2.2% Y/Y.  However, previous months were revised lower by 39,000.   And, that isn’t the report’s only negative component:

But the leading portions of the employment report are sounding an alarm. The manufacturing workweek was down.  Overtime was down. Unemployment from zero to 5 weeks increased significantly.  Revisions to prior months were negative.  This is the third month of this negative trend in the leading indicators in the employment report.  In my "Weekly Indicators" column, for the last month I have said that the US is in a shallow manufacturing recession.  Today's report confirms that.

     Chinese news was mixed.  The services index increased .6 to 52.9.  But exports were off 6.4% Y/Y and the headline manufacturing number decreased from 49.6-48.9.  Moreover, this continues a trend of recent weakness:

While China is not slipping in a recession, there is clearly a slowdown in the works.

     Overall, a general tenor of weakness continues to run through the releases.  The RBA stated their economy is operating below potential, while key Chinese metrics like manufacturing and exports are weakening.  While Canada did enjoy a week of positive news, they are still dealing with the weak oil market.  US leading employment numbers are pointing to a slight contraction in manufacturing.  Finally, the EU, while positive, is just barely so.     

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