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By HaleStewart April 26, 2015 8:01 am
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International Economic Week in Review: More Modest Expansion, Edition

     This week, let’s start with Japan, where news continued to point to a modest though uninspiring expansion.  Governor Kuroda said as much in his Semiannual Currency and Monetary Control Report:

Japan's economy has continued its moderate recovery trend.  With regard to the corporate sector, in the March Tankan (Short-Term Economic Survey of Enterprises in Japan) released this month, business sentiment has generally stayed at a favorable level.  Corporate profits for fiscal 2015 are projected to remain at a high level, and in this situation, firms have maintained their positive investment stance.  Exports have been picking up, and production has been picking up as well, due in part to the progress in inventory adjustments.  The employment and income situation has continued to improve steadily as wage increases by many firms including rises in base pay are likely to take place at this year's annual wage negotiations -- the so-called spring offensive -- as was the case last year, and private consumption as a whole has remained resilient.  As seen in these developments, a virtuous cycle from income to spending has been operating steadily in both the corporate and household sectors.  Looking ahead, Japan's economy is expected to continue its moderate recovery trend.

The coincident indicators dropped a bit from 113.2-110 while the leading indicators also declined, but from 105-104.8.  The LEIs have been treading water for nearly a year, while the CEIs have declined sharply from their early year spike:

Exports increased 8.5%, but sharp increases such as this are not uncommon in this data series.  Imports decreased 14.8%, which again is not uncommon.  But, the 3-year trajectory of imports – which can be used as a proxy for domestic demand – has been weak, indicating moderate domestic demand.  Finally, Markit’s Flash estimate showed a slight manufacturing contraction, as the top line number decreased from 50.3 to 49.7.

     Australia released their latest meeting minutes, which provided the following assessment of the Australian economy:

The December quarter national accounts, which were released the day after the March meeting, confirmed that the Australian economy had grown at a below-average pace over 2014. Members noted that growth in dwelling investment, consumption and resource exports had picked up, but that business investment had continued to fall and public demand had made little contribution to growth over the year. Recent indicators suggested that the below-trend pace of GDP growth had continued into the March quarter.

The Minutes also explain that although the real estate market is still strong, domestic demand is weak, unemployment is ticking higher and business investment is declining.  Overall, there is little reason to think the country’s growth trajectory will change in the next 6-12 months.

     The Bank of England also released their latest Meeting Minutes, which contained the following assessment of the UK economy:

GDP growth in Q4 had been revised up slightly to 0.6%, reflecting a stronger estimate of services output. Growth for calendar year 2014 had also been revised up, by 0.2 percentage points, to 2.8%. In the latest vintage of data, it appeared that there had been a gentle slowing in the pace of activity through the year, with average quarterly growth of 0.9% in the first half of 2014 and 0.6% in the second half. This was broadly in line with the message from business surveys and other indicators.

The report also contained news of solid consumer activity and business investment, “surprisingly strong” exports and weak inflation.  The only other news last week was a 4.2% Y/Y increase in consumer spending. 

       Two US housing metrics were released last week: existing home sales increased 6.1% M/M while new home sales decreased 11.4%.  Here is Calculated Risk’s explanation of the new home sales numbers:

The new home sales report for March was below expectations at 481 thousand on a seasonally adjusted annual rate basis (SAAR).

 However, sales for December, January and February were revised up by a combined 35 thousand (SA).  So, including revisions, sales were about as expected.

 Even with a little weakness in March, sales in 2015 are off to a solid start.

  The Census Bureau reported that new home sales this year, through March, were 129,000, Not seasonally adjusted (NSA). That is up 22% from 106,000 during the same period of 2014 (NSA). This is very early - and the next several months are usually the strongest of the year NSA - but this is a solid start.

Finally, durable goods increased .2%. 

      The primary news from the EU centered on the Markit Flash estimates of manufacturing and service activity, where the macro numbers for the region were 51.9 and 53.7 respectively.  Both are slight decreases, but as both are still positive there is continued room for EU optimism.  German manufacturing decreased from 52.8 to 51.9 while the services number dropped from 55.4 to 54.4.  The combined interpretation of these numbers is Germany is still doing well.  The EU’s second largest economy France, however, is teetering.  The manufacturing number is still in contraction territory at 48.4 (a slight decrease from the previous 48.8) while services are 50.8 (from 52.4). 

     Finally, we turn to China, where the Markit number shows continued contraction:

“Operating conditions in China’s manufacturing sector deteriorated slightly for the second month running in April, with the flash reading of the PMI falling to a one year low.

“Production increased only marginally, while total new business declined for the second successive month. Relatively weak demand conditions were also highlighted by stronger deflationary pressures in the sector, with both input and output prices falling at faster rates. Meanwhile, job shedding across manufacturing firms was recorded for the eighteenth month in a row.         

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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