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By HaleStewart January 21, 2018 7:04 am
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International Economic Week in Review: The Good News Continues

            The overall tenor of international news is still positive.  While UK retail sales are slowing, they are still up modestly Y/Y.  Although EU news was slightly weaker than we’ve been used to over the last few months, this week’s data has been weak for most of this expansion.  Australis growth is ticking modestly higher, Japanese news points to an increasingly robust industrial environment, and the Bank of Canada’s latest Monetary Policy Report painted a rosy picture heading into 2018.

            Retail sales were the only release of import for the UK.  According to the ONS, sales were down 1.5% M/M but up 1.4% on a Y/Y basis.  The ONS also releases the data in a rolling, 3-month format, which was +.4% this year and 1.1% on a Y/Y basis.  The report also contained these two charts:

The weekly index (in yellow) is volatile, which explains why the ONS also releases a 3-month moving average (in blue).  While the average is still rising, the pace of the increase is currently slowing.

 

The pace of annual retail sales growth is near its lowest since 2013.  Retail sales are a coincident indicator.  This chart points towards slower growth in 2018.

            News from the EU was a bit weaker than we’ve come to expect.  On the bad side, inflation is still weak.  Total inflation was up 1.4% Y/Y.  Eurostat has reported this number between 1.4%-1.5% since August.  And core was .9% for the third consecutive month.  While production in construction was up .5%, this number has been weak for the duration of this expansion:

However, it’s reasonable to assume this sector of the economy will start to grow more robustly: recent business sentiment indicators have printed their highest levels for the expansion and the EU is maintaining a loose monetary regime.  Finally, the ECB reported that the EU current account was 32.5 billion euros.  Portfolio investment made-up for the decrease in investment.

            Australian news was positive.  A seasonal adjustment caused the .1% increase in the unemployment rate; the number of employed people increased and the actual number of unemployed people was up marginally.  Here’s a look at the charts from the ABS:

 

Auto sales were off 2% and construction spending increased at a shockingly high 30%.  The ABS didn’t provide an explanation, but there was an incredibly large engineering order, which is undoubtedly a 1-time event. 

            Japanese news continues to impress.  Industrial production rose 3.6% Y/Y.  While this pace is slower than the ~5% average of April-August period, it’s still an impressive level that indicates that growth appears to be accelerating:

 

Non-volatile machinery orders rose 5.7%.  Most impressive, however, are the large increases for August, October, and November in the following table from the latest report:

 

Businesses don’t commit to expensive purchases unless increased demand is clearly visible or capacity utilization is strained.  Both reasons are bullish for the next few months.

            The Bank of Canada released their latest Monetary Policy Report, which contained very good news for the economy.  This table shows the detail:

Consumer spending – supported by a sharp drop in the unemployment rate – was strong last year.  The bank is projective a modest decline in 2018.  But thanks to a high capacity utilization, business is expected to increase investment – conditions that will also support additional hiring.  Finally, improving commodity prices will boost exports. 

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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