Slower Growth in Most Corners of the Globe

July 31, 2012

The final days of each month tend to be a rich minefield of economic data releases around the world.  This update presents some of this month’s highlights, which collectively paint a picture of sluggish global activity.

Perceptions about the United States are that trends are frustratingly sluggish but that conditions are not as poor as elsewhere.  There was some sobering news, but the overall stream of statistics has been mixed.  Real GDP advanced only 1.5% at an annualized rate last quarter, the weakest pace in four quarters, and by 2.2% from a year earlier.  More broadly, real GDP grew 0.6% per annum in the five years between the second quarter in 2007 and 2Q12.  Real consumer spending dipped 0.1% last month and was unchanged between April and June.  The flash manufacturing purchasing managers index fell by 0.7 points to a nine-month low of 51.8 in July, and the Milwaukee purchasing managers regional index plunged to a reading of 46.7 from 60.2 in June.  In contrast, Chicago’s PMI reading of 53.7 was up 0.8 points and at a three-month high.  Earlier signs of a better tone to the housing market was reinforced by the Case Shiller housing price index, where the on-year decline narrowed to just 0.7% because of a 2.2% monthly price increase.  And the Conference Board reported a 3.2-point advance in consumer confidence to a three-month high.

For months, ECB officials were forecasting a mild recession with improvement after midyear.  The downturn has been neither shallow nor short-lived.  Activity in Euroland appears likely to decline as much this quarter as in the second quarter.  The manufacturing PMI reading of 44.1 hasn’t been worse than that level since mid-2009.  The overall composite PMI was 46.4.  Money and credit growth continue to be restrained.  In the four years from 2Q08 to 2Q12, M3 money rose 2.3% per annum, half the reference pace that officials consider appropriate, and credit to the private sector dropped at a rate of 1.2% per year.  Economic sentiment slumped by a further two points to 87.9, lowest since September 2009, and all main sub-categories of the index fell in July.  The initial weakness of the peripherals, caused by fiscal austerity, high financing costs and poor competitiveness, has spread to previously resilient economies in the euro core.  In Germany, unemployment has risen four straight months, and retail sales volume edged just 0.1% higher between 1Q12 and 2Q12.  Real consumer spending in France edged just 0.1% higher in June.  Euroland’s index of leading economic indicators slid 0.3% in both May and June, and the region’s collective jobless rate advanced by 1.2 percentage points to a record 11.2% in June.  Unemployment in the previous statement year had stabilized and then started to recede. 

Europe’s largest non-Ezone economy, Great Britain, is suffering just as much as the common currency members.  Real GDP slumped at a 2.8% annualized rate in the second quarter and at a 2.2% pace in the first half of this year.  The distributive trades index plunged 31 points in the most recent reported month to a reading of 11, and consumer confidence in the U.K. remained very depressed at negative 29 in July.

Japan had been a pleasant surprise, getting support from reconstruction after last year’s earthquake.  GDP expanded 4.7% annualized in the first quarter of the year.  But 4Q11 had been soft, and the second quarter of this year will prove likewise fragile.  This vulnerability carried into the summer.  Retail sales dropped 1.2% in June, and the July manufacturing purchasing managers index sank to a sub-50 eight-month low of 47.9.  A 2.2% decline of industrial production last quarter persuaded authorities at the Economics, Trade and Industry Ministry to downgrade their assessment to “appears to be flat.”  That view had been abandoned at the end of 2011.  Deflation continues unabated:  Tokyo consumer prices fell 0.8% in the year to July, the biggest on-year drop since November.  Labor cash earnings were 0.6% lower in June than a year before despite the lowest unemployment rate in nine months.  Housing starts were significantly weaker than forecast.

Key emerging economies, whose strength mitigated the severity and length of the Great Recession, are also under the weather.  Chinese GDP advanced 7.4% at an annualized rate between the first and second quarters of 2012 and by 7.6% from a year earlier.  On-year growth in Chinese industrial output was smaller than 10% in each month of last quarter, and retail sales (up 13.7% in the year to June) shows that growth hasn’t rotated to a consumption basis as much as had been hoped.  Brazilian GDP growth was less than 1.0% in the first quarter, and in India, where economic growth averaged around 8.5% a year in 2005-10, such amounted to just 5.3% between 1Q11 and 1Q12.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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