Global Economic Growth Summary
Economic growth ground to a halt in much of continental Europe in the second quarter. Real Gross Domestic Product in the Euro-Zone was essentially flat, with GDP down in Germany, France, and Italy. Industrial production also fell in Europe in the second quarter as big declines in May were not fully reversed in June. However, the European Union’s production expectations index, still in positive territory in July, suggests that May’s big decline in industrial production
overstates the weakness. The Markit PMI (purchasing managers index) for the Euro-Zone suggests slowing but still-slightly-positive growth in manufacturing.
The proximate cause of the recent economic weakness in Europe is the hit to consumer and
business confidence caused by tensions between Ukraine and Russia. The (German) ZEW Economic
Sentiment Index has fallen sharply since January and in July suffered its largest one-month decline since 2012. But the weakness also reflects the slow underlying growth rate caused by high government debt, demographics, and structural rigidities. When the trend rate of growth is only 1-2%, it doesn’t take much of a negative shock to drag the growth rate down to zero.
Off the European continent, growth is much better. Real GDP in the United Kingdom has grown
at an above-trend rate for six consecutive quarters, raising year-over-year growth to 3.2%, the highest
among major developed countries. Growth has also been strong in Ireland. Ireland hasn’t reported
second-quarter data yet, but real GDP was up 5.1% year-over-year in the first quarter.
Economic weakness is not confined to continental Europe. Real GDP declined sharply in Japan
in the second quarter, albeit not as much as feared. The April 1 increase in the Value-Added Tax shifted economic activity from the second quarter to the first quarter. GDP declined at a 6.8% annual rate in the second quarter after rising at a 6.1% rate in the first quarter. Industrial production in Japanese manufacturing, which rose 11.2% from November 2012 to January 2014, has fallen 7.1% since then. Elsewhere in Asia, there is still no growth in manufacturing in Korea. Industrial production in Korean manufacturing was at the same level in June 2014 that it first reached in February 2012. Growth in industrial production has perked up in Australia, India, and Taiwan. Growth seemed to be picking up in China in May and June, but a series of weak data reports in July and a weak “flash” PMI report for August have called that pickup into question. Year-over-year growth in industrial production in July, at 9.0%, wasn’t bad, but construction was down year-to-date, and electricity generation was up just 5.3% year-over-year, its lowest growth rate since March 2013. In Chinese manufacturing, growth is concentrated in motor vehicles and consumer electronics.
Aside from the British Isles and a few countries in Asia, the only significant bright spot in the global economy is North America. Real GDP in the United States was reported to have risen at a 4.0% annual rate in the second quarter after falling at a 2.1% rate in the first quarter, and recent data suggest that second-quarter growth will be revised up. Industrial production in U.S. manufacturing rose 1.0% (seasonally adjusted) in July, pushing the year-over-year growth rate up to 4.9%, the highest in more than two years.
The Canadian economy is also doing well. Industrial production in Canada was up 4.7% year-over-year in May (latest data available). Canada shares some of the competitive advantages of the United States and benefits from strength in the U.S. auto market. Industrial production isn’t growing quite as fast in Mexico as it is in the United States and Canada, but Mexico is doing far better than the rest of Latin America, and recent reforms boost the prospects for faster growth in coming years.
There is a tendency among some market analysts to dismiss the current weakness in Europe and other parts of the world as “just geopolitics,” implying that underlying economic fundamentals are fine and that economic growth will go back to “normal” when geopolitical problems abate. There are two problems with that argument. First, underlying fundamentals aren’t that great and neither is the new “normal.” Second, geopolitics is an ever-present part of the global economy and has always played a role in causing the economic fluctuations we call “cycles.” Every U.S. recession since 1973 (and perhaps earlier) has been triggered by an oil price shock, and all of those oil shocks have been caused, at least in part, by geopolitical events. Today, persistent geopolitical problems, especially in the Middle East and North Africa but also in Nigeria and Venezuela, are keeping oil prices perhaps $15/barrel higher than they would otherwise be.
If peace were to miraculously break out in the Middle East and North Africa, oil prices would drop sharply. This would severely damage the economies of Russia and Venezuela, perhaps forcing the Russians to re-evaluate their involvement in Ukraine and prompting Venezuelans to elect a new government that would rebuild their declining oil industry. That would further lower oil prices. Given the paramount importance of oil prices to economic growth, this would provide a significant boost to global growth rates. I wouldn’t hold my breath, but one can always dream.
TRIVIA
Month & Year
Take the number of days in a leap year, add the number of months having 30 days, divide by the number of doughnuts in a Baker’s Dozen, add the number of days in March, add the square root of 9, and divide by the number of days in a week. Which month are you left with and what year is it?
ANSWER – September of 2014
The numbers used are – 366, plus 11, divided by 13, plus 31, plus 3, divided by 7 = 9. And of course, it is now 2014. (All of the months have 30 days except February.)
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Teamwork
Three workers are laying a brick wall. John can lay 1,000 bricks in three hours. Kate can lay 1,000 bricks in two hours. Tom can lay 1,000 bricks in six hours. How long will it take them to lay 2,500 bricks if they work together as a team?
ANSWER – 2 1/2 hours
How many bricks can be laid in six hours?
In six hours John lays 2,000 bricks. Tom lays 1,000 bricks. Kate lays 3,000 bricks. Therefore, in six hours they individually lay a total of 6,000 bricks.
This means it will take 2 1/2 hour to lay 2,500 bricks by working together?
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My Allowance
On Monday I spent a quarter of my allowance on clothes. On Tuesday I spent one third of my remaining money on a CD. On Wednesday I spent half of my remaining money on candy. On Thursday I spent my last $1.25 on a beer. How much is my allowance?
ANSWER - $5.00
Working backwards.
• On Thursday I had $1.25.
• On Wednesday I had $1.25 X (1 divided by one-half) = $2.50.
• On Tuesday I had $2.50 X (1 divided by two thirds) = $3.75.
• On Monday I had $3.75 X (1 divided by three quarters) = $5.00.
Sunday, August 24, 2014
Saturday, August 9, 2014
Economic Data
ECONOMIC DATA - VANGUARD
This week's economic data continued to signal improvements across the economy—from manufacturing to services to consumer borrowing. The markets, however, were more focused on developments in a number of hot spots in the Middle East and the ongoing tensions between Russia and the West.
For the week ended August 8, 2014, the S&P 500 Index was up 0.3% to 1,931 (for a year-to-date total return—including price change plus dividends—of about 6%). The yield on the 10-year U.S. Treasury note fell 8 basis points to 2.44%, for a year-to-date decrease of 60 basis points).
Services sector strengthens further
The ISM Non-Manufacturing Index rose to 58.7 in July, the highest level since 2005. (A reading above 50 indicates that the sector is expanding.) Among the equally weighted components of the index, the strongest gains were seen in business activity and new orders, but increases were seen in employment and supplier deliveries as well.
In total, 16 non-manufacturing industries reported growth, thanks to a stabilization or improvement in market conditions, with utilities alone reporting a contraction in activity.
Across-the-board improvements in factory orders
New orders for manufactured goods rose 1.1% in June, a stronger than expected rebound from the previous month's –0.6% reading. Orders for durable goods—manufactured products expected to last for three years or more—rose 1.7%, helped by the often volatile transportation segment, which saw a surge in orders for commercial and defense aircraft and parts.
Other segments made healthy gains as well, including machinery, computers, and electronic products, which bodes well for business investment. Orders for nondurable goods rose a more modest 0.6%. Compared with a year earlier, overall factory orders were up 2.5%.
Trade deficit narrows
The U.S. trade deficit (exports minus imports) shrank 7% in June to $41.5 billion compared with a revised figure of $44.7 billion for May. Exports inched higher on increased sales of commercial aircraft, automobiles, and pharmaceuticals.
However, more of the drop in the deficit was due to imports. Record-high food imports were offset by declines of more than $1 billion in both automobile and cell phone imports. With the recent energy boom in the United States, petroleum imports also fell, hitting their lowest level in more than three years.
"The shrinking trade deficit in June is supportive of stronger growth in the second quarter," said Vanguard economic analyst Vytas Maciulis. "It means that the next estimate of second-quarter gross domestic product may be revised up from the initial reading. However, while exports are likely to remain strong, the strength of domestic demand is the wildcard in the trade balance outlook."
Consumers continued borrowing for big-ticket items
Consumer credit, excluding mortgages, climbed $17.3 billion in June to a total of $3.2 trillion, according to data released by the Federal Reserve. That represents an increase of 6.5% over the previous year, a little off the 7.4% gain reported for May.
The lion's share of the rise was due to consumers taking on more nonrevolving credit, a category that includes automobiles, appliances, and student loans. Revolving credit, which includes credit card debt, expanded by $942 million, suggesting consumers are still reluctant to significantly increase their discretionary spending.
Productivity swings higher
The productivity of U.S. workers climbed by 2.5% on an annualized basis in the second quarter, according to a preliminary estimate from the Labor Department. That increase follows on the heels of a downwardly revised figure of –4.5% in the first quarter, the sharpest drop in productivity in more than 30 years.
Unit labor costs were unusually volatile as well, rising by only 0.6% in the second quarter compared with a revised first-quarter estimate of 11.8%.
Year over year, productivity was up 1.2% and unit labor costs rose 1.9%.
ENGLISH LANGUAGE
You think English is easy?
1. The bandage was wound around the wound.
2. The farm was used to produce produce.
3. The dump was so full that it had to refuse more refuse.
4. We must polish the Polish furniture..
5. He could lead if he would get the lead out.
6. The soldier decided to desert his dessert in the desert..
7. Since there is no time like the present, he thought it was time to present the present.
8. A bass was painted on the head of the bass drum.
9. When shot at, the dove dove into the bushes.
10. I did not object to the object.
11. The insurance was invalid for the invalid.
12. There was a row among the oarsmen about how to row.
13. They were too close to the door to close it.
14. The buck does funny things when the does are present.
15. A seamstress and a sewer fell down into a sewer line.
16. To help with planting, the farmer taught his sow to sow.
17. The wind was too strong to wind the sail.
18. Upon seeing the tear in the painting I shed a tear..
19. I had to subject the subject to a series of tests.
20. How can I intimate this to my most intimate friend?
Let's face it - English is a crazy language. There is no egg in eggplant, nor ham in hamburger; neither apple nor pine in pineapple. English muffins weren't invented in England nor French fries in France . Sweetmeats are candies while sweetbreads, which aren't sweet, are meat. We take English for granted. But if we explore its paradoxes, we find that quicksand can work slowly, boxing rings are square and a guinea pig is neither from Guinea nor is it a pig.
And why is it that writers write but fingers don't fing, grocers don't groce and hammers don't ham? If the plural of tooth is teeth, why isn't the plural of booth, beeth? One goose, 2 geese. So one moose, 2 meese? One index, 2 indices? Doesn't it seem crazy that you can make amends but not one amend? If you have a bunch of odds and ends and get rid of all but one of them, what do you call it?
If teachers taught, why didn't preachers praught? If a vegetarian eats vegetables, what does a humanitarian eat? Sometimes I think all the English speakers should be committed to an asylum for the verbally insane. In what language do people recite at a play and play at a recital? Ship by truck and send cargo by ship? Have noses that run and feet that smell?
How can a slim chance and a fat chance be the same, while a wise man and a wise guy are opposites? You have to marvel at the unique lunacy of a language in which your house can burn up as it burns down, in which you fill in a form by filling it out and in which, an alarm goes off by going on.
English was invented by people, not computers, and it reflects the creativity of the human race, which, of course, is not a race at all. That is why, when the stars are out, they are visible, but when the lights are out, they are invisible.
This week's economic data continued to signal improvements across the economy—from manufacturing to services to consumer borrowing. The markets, however, were more focused on developments in a number of hot spots in the Middle East and the ongoing tensions between Russia and the West.
For the week ended August 8, 2014, the S&P 500 Index was up 0.3% to 1,931 (for a year-to-date total return—including price change plus dividends—of about 6%). The yield on the 10-year U.S. Treasury note fell 8 basis points to 2.44%, for a year-to-date decrease of 60 basis points).
Services sector strengthens further
The ISM Non-Manufacturing Index rose to 58.7 in July, the highest level since 2005. (A reading above 50 indicates that the sector is expanding.) Among the equally weighted components of the index, the strongest gains were seen in business activity and new orders, but increases were seen in employment and supplier deliveries as well.
In total, 16 non-manufacturing industries reported growth, thanks to a stabilization or improvement in market conditions, with utilities alone reporting a contraction in activity.
Across-the-board improvements in factory orders
New orders for manufactured goods rose 1.1% in June, a stronger than expected rebound from the previous month's –0.6% reading. Orders for durable goods—manufactured products expected to last for three years or more—rose 1.7%, helped by the often volatile transportation segment, which saw a surge in orders for commercial and defense aircraft and parts.
Other segments made healthy gains as well, including machinery, computers, and electronic products, which bodes well for business investment. Orders for nondurable goods rose a more modest 0.6%. Compared with a year earlier, overall factory orders were up 2.5%.
Trade deficit narrows
The U.S. trade deficit (exports minus imports) shrank 7% in June to $41.5 billion compared with a revised figure of $44.7 billion for May. Exports inched higher on increased sales of commercial aircraft, automobiles, and pharmaceuticals.
However, more of the drop in the deficit was due to imports. Record-high food imports were offset by declines of more than $1 billion in both automobile and cell phone imports. With the recent energy boom in the United States, petroleum imports also fell, hitting their lowest level in more than three years.
"The shrinking trade deficit in June is supportive of stronger growth in the second quarter," said Vanguard economic analyst Vytas Maciulis. "It means that the next estimate of second-quarter gross domestic product may be revised up from the initial reading. However, while exports are likely to remain strong, the strength of domestic demand is the wildcard in the trade balance outlook."
Consumers continued borrowing for big-ticket items
Consumer credit, excluding mortgages, climbed $17.3 billion in June to a total of $3.2 trillion, according to data released by the Federal Reserve. That represents an increase of 6.5% over the previous year, a little off the 7.4% gain reported for May.
The lion's share of the rise was due to consumers taking on more nonrevolving credit, a category that includes automobiles, appliances, and student loans. Revolving credit, which includes credit card debt, expanded by $942 million, suggesting consumers are still reluctant to significantly increase their discretionary spending.
Productivity swings higher
The productivity of U.S. workers climbed by 2.5% on an annualized basis in the second quarter, according to a preliminary estimate from the Labor Department. That increase follows on the heels of a downwardly revised figure of –4.5% in the first quarter, the sharpest drop in productivity in more than 30 years.
Unit labor costs were unusually volatile as well, rising by only 0.6% in the second quarter compared with a revised first-quarter estimate of 11.8%.
Year over year, productivity was up 1.2% and unit labor costs rose 1.9%.
ENGLISH LANGUAGE
You think English is easy?
1. The bandage was wound around the wound.
2. The farm was used to produce produce.
3. The dump was so full that it had to refuse more refuse.
4. We must polish the Polish furniture..
5. He could lead if he would get the lead out.
6. The soldier decided to desert his dessert in the desert..
7. Since there is no time like the present, he thought it was time to present the present.
8. A bass was painted on the head of the bass drum.
9. When shot at, the dove dove into the bushes.
10. I did not object to the object.
11. The insurance was invalid for the invalid.
12. There was a row among the oarsmen about how to row.
13. They were too close to the door to close it.
14. The buck does funny things when the does are present.
15. A seamstress and a sewer fell down into a sewer line.
16. To help with planting, the farmer taught his sow to sow.
17. The wind was too strong to wind the sail.
18. Upon seeing the tear in the painting I shed a tear..
19. I had to subject the subject to a series of tests.
20. How can I intimate this to my most intimate friend?
Let's face it - English is a crazy language. There is no egg in eggplant, nor ham in hamburger; neither apple nor pine in pineapple. English muffins weren't invented in England nor French fries in France . Sweetmeats are candies while sweetbreads, which aren't sweet, are meat. We take English for granted. But if we explore its paradoxes, we find that quicksand can work slowly, boxing rings are square and a guinea pig is neither from Guinea nor is it a pig.
And why is it that writers write but fingers don't fing, grocers don't groce and hammers don't ham? If the plural of tooth is teeth, why isn't the plural of booth, beeth? One goose, 2 geese. So one moose, 2 meese? One index, 2 indices? Doesn't it seem crazy that you can make amends but not one amend? If you have a bunch of odds and ends and get rid of all but one of them, what do you call it?
If teachers taught, why didn't preachers praught? If a vegetarian eats vegetables, what does a humanitarian eat? Sometimes I think all the English speakers should be committed to an asylum for the verbally insane. In what language do people recite at a play and play at a recital? Ship by truck and send cargo by ship? Have noses that run and feet that smell?
How can a slim chance and a fat chance be the same, while a wise man and a wise guy are opposites? You have to marvel at the unique lunacy of a language in which your house can burn up as it burns down, in which you fill in a form by filling it out and in which, an alarm goes off by going on.
English was invented by people, not computers, and it reflects the creativity of the human race, which, of course, is not a race at all. That is why, when the stars are out, they are visible, but when the lights are out, they are invisible.
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