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By HaleStewart March 20, 2015 11:18 am
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International Economic Week in Review: Minute by Minute, Edition

     Let’s start with the UK which released two pieces of key news, starting with a 5.7% unemployment rate, which remained stable from the preceding month.  This important metric has been in a solid decline for the last year:

In addition, the BOE released the minutes of their latest meeting.  While the UK economy was doing well, there was concern that the overall pace of expansion was slightly lower than anticipated.  The biggest problem was weak business investment, which dropped mostly as a result of lower North Sea oil activity.  But there was also concern that increasing unfunded pension liabilities may be hurting sentiment.  While consumer spending and sentiment were up, there was also deep interest in how consumers were allocating the cut in energy expenditures between spending and savings.  And finally, housing was stable.

     The only news out of Australia was the release of their latest meeting minutes, which had the following summation of the Australian economy:

Members noted that a range of indicators suggested that Australian GDP growth continued at a below-trend pace in the December quarter and over the course of 2014. These indicators had suggested that growth of consumption, dwelling investment and public demand were likely to have increased, but that business investment was likely to have fallen further, largely reflecting further steep declines in mining investment.

The big problem facing Australia is business sentiment.  Mining activity is down.  And with China (the primary market for Australian raw materials) slowing, this trend will clearly continue.  But as the drop in natural resource activity has weakened macro-level output, non-mining businesses have not picked-up the economic slack, leaving a weaker overall private sector environment.  As for the consumer sector, while overall retail activity has increased, weak wage growth and a slackening of the labor market implied slower future activity.  Overall, the RBA believes that for the foreseeable future, growth with continue below pace.

     The big news out of the US was the Fed meeting, where the central bank offered the following analysis of the US economy:

Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

While the two main sectors of the economy – consumer spending and business investment – were performing well, the overall lack of wage growth indicates there is weakness (most likely caused by the still lower employment/population ratio) somewhere in the labor market.  Several other pieces of data released include the .1 M/M increase in industrial production and a 17% drop in housing starts (largely attributed to weather effects in the NE).  Finally, the leading indexes increased .2%, indicating more moderate expansion in the coming months. 

But while there was broad based increases in the indexes components, notice the two month drop in manufacturing orders, which may be caused by the strong dollar and overall weak overseas environment:

     Canada released two pieces of information.  CPI’s Y/Y increase was 1%, with the low rate of change mostly caused by gasoline prices:

Retail sales Y/Y pace of increase dropped from 4% in December to 1.2% in January.

     The EU’s Y/Y rate of increase in inflation was -.3%.  This was a mild improvement over the previous figure, but is still at a negative rate.  The best news was the increase in sentiment, which rose from 52.7 to 62.4:

Hopefully this is a continue harbinger of an improving situation.

     And finally, the BOJ released their latest minutes, which noted an overall moderate trend of growth in the economy.  Business investment was increasing and labor market conditions were improving.  Retail sales were “resilient” and had rebounded from their 2Q14 contraction.  And, finally, housing appeared to be bottoming.

     What’s the conclusion? 

  1. The Fed is still the hands down favorite to be the first major central bank to raise rates
  2. The EU continues to improve, although we’re nowhere near out of the woods from potential downside surprises, especially with the Greek situation.
  3. Canada is starting to show real potential problems.  But, we haven’t had enough data to draw a firm conclusion.
  4. Australia’s problems aren’t economy-threatening, but they do imply a consistent period of sub-par growth.

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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