International Economic Week in Review: A Deluge of New Data

There has been a trickle of economic news over the last few weeks, most likely timed with late summer vacations. But that ended this week as economic agencies in Japan, the EU and Canada flooded the market with data. Japanese data showed Abenomics is either failing or, worse yet, has failed. Although EU data is still positive there is a slight weakening. While Canada is still hurting from oil’s price drop, the worst is probably over.

Japanese news continued its recent bearish tone. The ultra-low 3% unemployment rate is not translating into higher consumer spending. Retail sales declined for the fifth consecutive month, this time by .2%. This data is consistent with household spending, which has moved sideways for the last year. Industrial production, which has a slight downward trajectory since the sales tax hike in April 2014, showed a 0% M/M gain and a 3.8% Y/Y drop. New construction orders for the 50 largest contractors decreased for the 7^th time in the last 12 months, this time by 10.9%. Housing starts supplied the only positive news; they increased 8.9% and have been strong since the start of the year.  With the exception of housing starts, none of the data points were encouraging. 

EU news was slightly positive, but trending weaker. Although consumer sentiment only declined slightly, industrial confidence dropped at the sharpest rate since 02/09. This could be a precursor to restrained business investment in the next 3-6 months. Unemployment remained at 10.8% for the third consecutive month, potentially indicating that employment progress is stalling. Inflation was a weak .2%. While Markit’s manufacturing number was still positive (overall reading 51.7), underlying details area concerning. New orders were the weakest in 1 ½ years. And Italy joined France in the "contracting industrial sector" club. Due to a sharp pace of contraction, the former reported its’ first sub-50 reading in several years. More troubling is France’s 6 consecutive months of sub-500 readings. While the tenor of the news was positive, there are enough concerning points “beneath the surface” to warrant some caution. 

The .4% Q/Q decline in GDP shows that Canada is still hurting from oil’s price decline and weak international economic environment. Exports 4.5% drop was the primary reason for the contraction. Households continue to spend modestly; their consumption increased.5%, the same pace as the preceding 4 quarters. And business investment barely contracted, falling a slight .1%. The report’s best news was the .5% increase in final domestic demand, which should bode well for the next few quarters. Canadian manufacturing is still growing: the RBC manufacturing index was slightly lower, declining from 52.1 to 51.8. But new orders and output both registered their weakest levels in over a year. Finally, prices are contained, with a 1.3% increase in producer prices. 

The other major economies saw a smattering of releases, the best of which was the sharp turnaround in the UK's Markit PMI. It rose 5 points to 53.3, which was one of the sharpest increases in the history of the data series. It may also indicate that the slow movement towards Brexit is encouraging businesses to increase spending. Chinese manufacturing fell .6 points to a just positive reading of 50. Finally, Australian building permits increased 11.3%, largely due to a continued increase in multi-family activity; in contrast, single-family homes have slightly decreased over the last year. Finally, retail sales increased .1% for the third consecutive month.