Fisher Investments Editorial Staff

Elections Over Economics

By, 10/25/2012

During an election season, it’s easy to get lost in the rhetoric and miss the broader picture. This go round, many are focusing on what they see as a key or decisive issue in the US election—the current state of the global economy and who’s better prepared to lead given the backdrop. The picture often painted in this politicized discussion is one bent towards the negative: Talk is of global economic fragility, Europe’s ills and who’s next to be European, Chinese slowing or unfair trading and many more. But it’s critical to put all the rhetoric in its proper place. Here’s a quick glimpse at economic data from many parts of the world—illustrating politicians likely aren’t presenting the full picture.

While US economic growth rates haven’t been gangbusters since the recession ended in June 2009, the economy has consistently grown and has actually outpaced many other developed economies. On Wednesday, data showed the US housing market is continuing to heal. In the month, the median new home sale price fell from $250,400 in August to $242,400, which appears to have spurred additional buyers: September new home sales rose +5.7 m/m (+27.1% y/y), continuing an uneven trend of improvements. But as we’ve written, the housing market is only a small slice of the US economy.

However, when taking a look at data released in recent weeks, it appears the broader economy also continued expanding. September retail sales rose +1.1% m/m (+5.4% y/y). September industrial production, reported last week, expanded +0.4% m/m, eclipsing analysts’ estimates and rebounding after a one-month dip in August. (Also in the report, broad capacity utilization remained below 80%, partly explaining why recent CPI reports have shown benign inflation, despite fears to the contrary.) And US leading economic indicators beat estimates, rising +0.6% m/m (+2.9% y/y) in September. Of its 10 components, 6 were positive and 1 flat, showing broad based improvement. Moreover, the three negative reads were very modest. On the flipside, trade data showed total trade—both exports and imports—fell in August (the most recent monthly data available).

In China, the largely government-engineered economic slowdown beginning in 2011 may have proven more stubborn than policymakers believed. But it does appear the increased liquidity and myriad other reforms and pump-priming the government has done in recent months are beginning to show in economic data. Wednesday, HSBC released its China manufacturing flash PMI—a gauge largely excluding major state-owned enterprises. The data remained slightly contractionary at 49.1, but that’s an improvement over the preceding months. (The government’s gauge, which includes large, state-owned firms has yet to be published.) Last week, as we reported, Q3 GDP data showed growth of 7.4% y/y in the quarter—slower than the prior, but a not too shabby rate nonetheless. Beyond this broad gauge, retail sales and trade both accelerated in the month. Loan growth and money supply data have been mixed of late. In August, banks extended 703 billion in new yuan loans—a sharp monthly gain over July and easily exceeding analysts’ forecasts of 600 billion yuan. M2 money supply grew 13.5% y/y in the month—a bit below analysts’ 14.0% y/y estimates. In September, loan growth was slower than expected—623 billion yuan versus an expected 700 billion. Yet M2 accelerated to 14.8% y/y, the fastest pace in more than a year. Overall, it appears policymakers’ efforts to spur growth through monetary policy and reforms are taking root, but at a lag to their implementation (which is what we’d expect).

In Europe, eurozone October PMI data were rather weak, falling to 45.8 from 46.1 in September, missing analysts’ estimates of a slight acceleration to 46.5. Manufacturing drove the decline, falling from 46.1 to 45.3. Services, the dominant sector of the eurozone economy, accelerated less than expected, rising from 46.1 to 46.2. Which would seemingly confirm what most folks have long known: The eurozone’s economic growth is weak at best and outright contractionary in some cases. But other eurozone data tell a more nuanced story. August’s industrial production, for example, rose 0.6% m/m, easily beating estimates calling for a -0.4% decline. Of particular note, production was led by many of the peripheral nations who’ve struggled mightily in recent years. Eurozone exports rose 3.6% m/m in August, reversing a -2.2% July decline. Imports, weak in recent months, also rose. 

Of course, this isn’t a complete look around the world and yes, there are weak spots. But the broader picture is politicians’ rhetoric seems overly focused on the negatives and overlooks economic reality. Then again, we guess it’s hard to win elections by citing actual economic data.

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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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