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By HaleStewart February 18, 2018 7:54 am
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International Economic Week in Review: The Global Growth Wave Continues

            The overall trend of major international news continues to trend in a positive direction.  Japan is on solid growth footing while EU news is well into its second year of an overall bullish tone.  Australia’s employment situation continues to improve.  The only weak spot is the UK, where retail sales disappointed and inflation is running a bit hot.

            Japanese GDP rose 1.5% Y/Y.  The BOJ’s “virtuous cycle” of activity flowing into spending is in full bloom.  Starting with the consumer, not only is the unemployment rate below 3%, but the labor force participation rate has been increasing since 2013.  This has contributed to rising employee income, which spurred a 1.1% uptick in household spending.  The BOJ’s synthetic consumer activity index is also rising:

Corporate profits are up strongly as is business sentiment.  Both supported a 3% Y/Y increase in business investment.  And thanks to a weak yen, exports advanced 6.8%.  While trade with the U.S. and EU has been increasing for the last few years, shipments to China have increased substantially over the last year:

“Abenomics” received a fair amount of derision over the last few years as its promised results emerged slowly.  It now appears that the economy is hitting on all cylinders.

            EU news continues to impress.  The latest GDP release showed a 2.7% Y/Y increase, which is only .1% less than the first quarter number.  The report doesn’t provide any sectoral detail.  However, other releases point to continued solid activity.  Industrial production rose 5.2% Y/Y.  Capital goods numbers rose 7.6%, durable consumer production was up 7.4% and investment goods increased 6.6%.  The chart of this coincident economic indicators shows solid, continued growth:

The ECB believes this will lead to increased industrial activity:

Investment should continue to be supported by very strong business confidence and lower uncertainty, higher capacity utilisation, accommodative financing conditions, stronger corporate profits and the widespread need to modernise the capital stock. According to the euro area sectoral accounts, the corporate gross operating surplus increased in the third quarter of 2017 at a higher year-on-year rate than in the previous quarter. Furthermore, earnings expectations for listed companies in the euro area continue to register high levels. As regards construction investment, features such as households’ rising disposable income and very favourable lending conditions should underpin demand in the construction sector. 

The business sector should also receive a continues boost from exports, which increased 1% Y/Y in December.

            The Australian unemployment rate decreased .1% to 5.5%.  Here are the relevant data points from that release:

  • Employment increased 16,000 to 12,453,500. Full-time employment decreased 49,800 to 8,460,900 and part-time employment increased 65,900 to 3,992,600.
  • Unemployment decreased 7,900 to 723,800. The number of unemployed persons looking for full-time work decreased 4,500 to 497,800 and the number of unemployed persons only looking for part-time work decreased 3,400 to 226,000.
  • Unemployment rate decreased 0.1 pts to 5.5%
  • Participation rate decreased by 0.1 pts to 65.6%.
  • Monthly hours worked in all jobs decreased 24.1 million hours (1.4%) to 1,708.2 million hours

The Australian economy continues to do well.

            UK news was mixed.  Retail sales were -.1% M/M and up 1.6% Y/Y.  This data series has clearly slowed down over the last 6-12 months:

 

And CPI was 3%; the ONS has reported it between 2.9%-3.1% since August.  A consensus has emerged that the impact of a cheaper sterling is now at maximum effect:

We’ll have to wait and see if that is correct.

            Next week we’ll receive the latest data from Markit analytics; let’s hope it continues in a bullish vein.  The only major central bank news will come from Australia, where the RBA will release the latest minutes.  We’ll also get unemployment and GDP data from the UK and sentiment numbers from the EU.

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

 

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