Fisher Investments Editorial Staff

Around the World in 80 Datapoints (Or Thereabouts)

By, 07/25/2014
Ratings993.585859

In our continuing effort to cover matters most of the financial press has abandoned in favor of all things geopolitical, here is a look around the wonderful world of recent global economic indicators. Tensions might be above the boiling point in the world’s conflict zones, but across the rest of the globe, life is going on—and the latest data show the world economy is still growing.

Eurozone Flash July Composite Purchasing Managers’ Index (PMI), the first reading on the 18-nation bloc’s manufacturing and services industries, jumped to 54, accelerating from June’s 52.8 and the 13th consecutive month of growth. Analysts expected another 52.8 read. Now, if you are new to fun things like Eurozone Flash Composite PMI, here is a brief tutorial of what all those fancy-sounding words mean. PMI is merely a survey. Markit, the organization that publishes many of these gauges, polls businesses in a particular region (5,000 in the case of the eurozone) and asks them a series of questions about how business went in the month. It’s all later cobbled together and voila, you get a reading. That reading is the percentage of firms that reported growth, so above 50 is supposedly growthy because more than half of firms reported expanding activity. It’s imperfect, of course, because that doesn’t tell you the magnitude of output or orders, but it’s worthwhile to note anyway. “Flash” is used as in “Out in a…” because the Flash PMI readings are the preliminary ones. How do they get these Flash readings out so lightning quick? They use an incomplete series of data, of course! Finally, the “eurozone” is the 18-nation[i] bloc of countries sharing the euro as their currency and the ECB as their central bank, which you probably already knew. These early data center on Germany and France. German services and manufacturing grew, while French data were mixed, with manufacturing slightly down, while services grew slightly. The press focused more on France.

The HSBC/Markit China Flash Manufacturing PMI showed growth accelerated as well, to an 18-month high. The gauge registered 52.0 in July, topping analysts’ estimates of 51.0 and accelerating from June’s 50.7. All the same caveats from above apply here, and arguably even more so. The HSBC/Markit Flash Manufacturing PMI gauge includes neither China’s larger industry group (services) nor the large state-run firms that dominate manufacturing. China’s “official” PMI covers the latter, but it wasn’t published this week, so we can’t include it. But this gauge can tell you a thing or two about sentiment, as it did last month when the first reading above 50 met weird statements alluding to a Chinese economic “recovery”—all while most Chinese economic data series are growing at high single-digit percentage rates.

Moving across the East China Sea and a bit to the north, Japan Flash Manufacturing PMI slowed from 51.5 in June to 50.8, with new orders also slowing from 52.3 to 51.1. Separately, Japanese June trade data showed exports fell -2% y/y (in yen, -1.7% y/y in volume shipped), while import values grew 8.4%, triggering the usual headlines fretting the wider trade deficit. However, the real issue here (and everywhere) is not the trade deficit, which is a faulty measure of activity. Rather, it is that early efforts to weaken the yen (part of Prime Minister Shinzo Abe’s “Abenomics”) do not seem to be helping and, by increasing the cost of imported fuel, they create headwinds. By value, oil and oil products were the two biggest contributors to import growth. Higher fuel costs weigh on the private sector’s bottom line.

US data were light, but there are some things to look at. After last week’s regional manufacturing gauges from the New York and Philly Feds showed July activity accelerating to four- and three-year highs, respectively, this week the Kansas City and Richmond Feds’ Manufacturing Surveys both grew. If PMI surveys are imperfect, these regional surveys are even more so in that they are far from national in scope, but still. Also in the US, the Census Bureau reported new home sales fell -8.1% m/m in June to a seasonally adjusted annual rate of 406,000 units (-11.5% y/y). But before you chalk this up to a weakening housing market, Fed policy or some other presumably bad factor, consider that existing home sales rose +2.7% m/m in June to 5.04 million unit annual rate. Besides, housing didn’t bottom in this cycle until 2012, three years after the bull market began. Stocks just don’t need a big economic contribution from housing.

Lastly, one other piece of data seemed to grab eyeballs this week: Inflation. The headline US Consumer Price Index grew 2.1% y/y in June. The big contributors? Energy and food, which grew 3.2% and 2.3%, respectively. Core CPI slowed, growing 1.9% y/y in the month—to the Fed, that is the more relevant factor of the two, though many disagree. Energy and food prices are frequently skewed by weather, and you can’t make it rain with rate hikes. As Bloomberg’s Megan McArdle wrote Thursday, “The Fed Can’t Lower Your Grocery Bill.”

The broad story all these minute, volatile and oddly flawed series show is largely this: Growth continued in Q2’s last month, and July’s preliminary reads indicate more of the same. Though, admittedly, we believe you get a lot of this same information by following the Leading Economic Indexes, which is still high and rising.

 



[i] It will be 19 nations in 2015, as Lithuania adopts the common currency January 1. The current 18 nations are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. This is very different than the EU, which is 28 nations including the UK. Even that isn’t exactly synonymous with Europe because, for example, Switzerland isn’t in either of those, but is certainly in Europe.

 

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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