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By HaleStewart February 6, 2015 12:28 pm
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International Economic Week in Review: the Malaise Edition

       Before getting into detail, here are the bullet points for the various economic regions

  • Australia is showing weakness, which explains why the RBA lowered rates 25 basis points.  However, it’s not to the point where we should be concerned about a recession
  • Japan is improving from its technical recession
  • Canada is being negatively hit by lower oil prices
  • The US is powering forward at a solid rate
  • The UK is also in a solid position
  • The EU data is slightly hopeful

     The RBA lowered interest rates earlier this week (see here).  While the economy is not in a position to be fearful of a recession, there is a slight weakness to all three major economic areas.  The AIG manufacturing index stands at 49 (50 separates expansion and contraction) with 5 of 8 industries contracting.  The service index is at 49.9, but 7 of 8 industries are contracting.  And the construction index printed at 45.9, with all three sectors below 50.  While retail sales increased .2% in December, there is still long-standing weakness in the department store and clothing sectors.  And business confidence slipped from 6 to 2.  The total impact of these numbers shows there is a general malaise to the economic environment down-under.

     There was little new information from Japan this week, but what was issued points to an improving economy.  The Markit services numbers printed at 51.3 – a slight decrease from the 51.7 level, but still positive.


Plus the government released LEIs increased from 103.9 t0 105.2, while the coincident indicators were up 1.5%.

     Canada is struggling under weak oil prices.  Their manufacturing index dropped from 53.9 to 51, which is the lowest point in 21 months.  The Ivey PMI dropped sharply, moving from 55.4 to 45.4. 


While exports increased 1.5%, imports increased 2.3%, leaving the country with a negative trade balance.  On the plus side, the unemployment rate dropped .1%, falling from 6.7% to 6.6%. 

     US numbers were solid across the board.  The ISM manufacturing number printed at 53.9 while the service number was 54.2.  Both had very positive anecdotal notes, indicating the overall tenor of business is positive. 

While personal spending dropped .3% in December, the general consensus was discounts pulled sales forward to October and November.  But the best report was Friday’s employment numbers, showing incredibly good job growth and wage growth.  Plus, this report had some very positive upward revisions for the last 12 months, indicating overall growth was far stronger than anticipated.

     Markit released three numbers for the UK: manufacturing, services and construction all of which point to solid growth.  Manufacturing printed at 53, continuing a period of nearly 2 years of growth; construction was 59.1, which makes it 21 straight months of increases and services were 57.2. 

The services report also indicated there’s been an increase in new business and backlogs, which should add to further employment gains in the coming months.  Finally, the Bank of England kept rates on hold, largely due to the lowering of overall inflation pressures in the economy.

     News from the EU was actually not bad.  Overall EU manufacturing was 51, which continues this data series now 7 months stretch of printing right above expansion.  Germany came in at 50.9 while Spain powered forward with a reading of 54.7.  France and Italy were both just below expansion, with a 49.2 and 49.9, respectively.  The overall composite numbers were also positive, with the EUs printing at 52.6.  The only laggard in the top four was France, which was just barely negative at 49.9.  But Germany was 53.5, Spain was 56.9 and Italy was 51.2.  In addition, retail sales came in at a 2.8% Y/Y rate.  The only bad news was PPI, which decreased 2.7% Y/Y.  But, given the massive drop in oil, that’s to be expected. 

     Two economies – Australia and Canada – have recently seen a drop in rates, caused by an overall weakness in their respective economies.  Neither are heading toward a recession, but both are clearly suffering from a certain level of malaise.  Both are also dependent on raw material exports, meaning the drop in commodity prices is seriously harming both.  Japan may be making a slight comeback – at least based on this week’s numbers – but they are hardly out of the deflationary woods yet.  The US and the UK are both showing some really strong results.  And, the EU is also showing some signs of life.  Germany is still growing and Spain is really starting to come alive.  France is slowing, but their numbers have been just barely negative.  Overall, it could be argued that we’re beginning to see positive signs from the EU QE announcement, but we certainly don’t have enough data to make a definitive call.

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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