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By HaleStewart March 2, 2014 8:58 am
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International Week in Review: The Big US GDP Miss Edition

   The US had a very data heavy week, with the most important announcement being the downward revision of 4Q GDP to 2.4% from over 3%.  This places US growth back into the slower, post financial crisis pace of the previous quarters and again leads to the conclusion the economy is mired in sub-par growth.  Adding to the more pessimistic outlook was the 1% drop in durable goods (although non-defense, non-transport orders increased 1.7%) and decline in the Markit Services index to 52.7 from 56.7.  On the plus side new homes sales increased 9.6% and the Case Shiller home price index increased 13.9% Y/Y.  Finally, the Chicahoo PMI index came in at a strong reading of 59.8.

   The news from the EU continued to disappoint.  The unemployment remained at 12% -- a very high level for an economy that is supposedly rebounding.  Private loans continued to decrease on a Y/Y basis, coming in at -1.1%.  And the annual inflation rate continues to print subdued readings, this time coming in at .8%.  All of these data points lead to the conclusion the ECB will have to engage in more aggressive policy action over the next few months.

   Japanese news was very positive.  The latest manufacturing PMI remained at an elevated level, decreasing from 56.6 to 55.5.  The Y/Y percentage change in CPI was 1.4% and the unemployment rate was very low at 3.7%.  Two other statistics point to strong growth: industrial production increased 4% M/M and retail sales increased 4.4% M/M, although the retail number is front loaded because of the upcoming sales tax increase.

   Australian news was downbeat.  Building capital expansion plans decreased 3.5% M/M and plant/machinery investment decreased 8.6% Q/Q.  Remember that Australia is trying to move away from being heavily dependent on raw materials exports as their primary economic driver.  To do that, they need businesses to change their capital composition, which the latest figures indicate is not happening.

   And finally, we had two other important pieces of GDP news.  The UK’s final 4Q GDP numbers were unrevised at 2.7%, while Canada’s latest annualized GDP was 2.9%.  The UK number confirms the economy is clearly in the middle of an expansion, while the Canadian number boost the propects for that country.

   The biggest disappointment this week goes to the 4Q US GDP revision.  This again places the US economy into a position of weak growth.  The EU data was also uninspiring as it shows a region still mired in a very weak economic environment.  Also of concern is the Australian economy, as it does not appear to be making the transaction into a non-materials exporting economy the RBA is hoping for.  On the good side, the UK is still on the upswing, Abenomics still appears to be having its desired effects on the Japanese economy and Canada is growing at a fairly decent rate. 

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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