Sunday, May 28, 2017

International Economic Week in Review

     Let’s delve into the country specific data.

     The Bank of Canada maintained their current .5% interest rate policy this week, offering the following assessment of the Canadian economy:

The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.

OPEC’s decision to increase oil production had a strong negative impact on western Canada, which had seen a boom of tar sands related activity.  But according to the central bank, the adjustment is now over.  They also describe a standard series of economic cause and effect events, starting with a declining unemployment rate:

The jobless rate dropped from 7.3% at the beginning of 2016 to its current level of 6.5%.  This has increased consumer confidence, which translates into higher consumer spending:

Y/Y retail sales increase have risen from 1% in 2015 to their current strong pace of just under 7%.  And the other half of the economic equation – businesses – are also increasing their activity:

The top chart shows the Canadian PMI index, which has risen strongly since the beginning of 2016.  This has translated into strong gains in industrial production, as shown in the second chart.

The combination of these developments has led to an increase in Canadian GDP:

The above data indicates that Canada has recovered nicely from oil’s price drop.

     The ONS released the 1st revision to the UK’s 1Q GDP report.  Overall GDP increased .2% from the previous quarter:

This is one of the weakest readings for from the UK since 2012. Moreover, the Q/Q number has weakened in the last 9 quarterly reports.  This is translating into a slightly lower Y/Y growth rate:

 Here is a breakdown of report’s component parts:

 This quarter, investments (in grey) was a large driver, which has greatly offset by a large decline in exports (in yellow).  It’s natural to ask if the post-Brexit slowdown predicted by a number of economists and analysts is now here.  We’ll need at least another quarter of data to make that determination.

           The only news from the EU was the latest Markit numbers: manufacturing rose to a 6-year high of 58.4; services marginally decreased .2 to 56.2; the overall number was unchanged at 56.8.  But the report contained this very positiveanalysis:

With backlogs of work across the two sectors registering the second-largest rise in six years, firms again took on staff at a pace rarely seen in the survey’s history in order to expand operating capacity. The overall rise in employment was the second-largest since August 2007, with manufacturing adding jobs at the steepest rate in the survey’s 20-year history. Service sector job gains matched those seen in April, sustaining the best spell of employment growth that the tertiary sector has enjoyed since early-2008.

In recent public commentary, the ECB noted a very important feedback loop was occurring: job gains were increasing consumer confidence which, in turn, was supporting increased consumer spending.  Here is the data:

The top chart is the EU unemployment rate, which has consistently decreased for the last 4 years.  That has supported retail sales (bottom chart), which have steadily increased over the same period of time.

     Finally, there were two pieces of economic data from Japan.  The market number decreased marginally, falling .2 to 52.  And prices remain weak: overall, they increased .4 while core prices were unchanged.