Economic Strength, Where Is It: European and U.S. Data

European Economic Weakness Tells of Global Markets

Following European Central Bank's flood of money across Europe, inflation is staying flat through the region. March 13, France reported a Consumer Price Index that rose only .4% in February, giving a year over year result of 2.3%. Both results were lower than consensus expectations. Italy posted similar numbers, together with Germany. Great Britain's CPI provided a month over month rate of .6%, and year over of 3.4%. Generally contributing to price increases across the region was fuel.

Muted inflation amid liquidity floods may not be surprising, and certainly gives indication that interest rates in Europe might not be increasing very soon. Failure of inflation numbers to surprise originates out of the region’s economic performance.

European Union (EU) GDP posted early in March for Q4, 2011. Data revealed a GDP contraction of -.3%  for the quarter and compares with a .2% gain in Q3. Yearly numbers show Eurozone GDP still growing, but at .7% versus a previous gain of 1.4%.

A majority of European states are experiencing GDP contraction with Belgium down .2%, Netherlands down .7%, Slovenia down .7%, Italy down .7%, Spain down .3%. Even Germany is down .2%, leaving France as one among few still expanding economies. Great Britain, while not a euro country, is slowing faster than France with Q4 down -.3%, leaving a yearly gain of only .5% versus France’s yearly gain of 1.3%.

Q1 European Strength Not Showing In Its Economy

Data for Q1, 2012 isn't making EU GDP prospects look more optimistic. European Union's Purchasing Managers Index (PMI) provides insight. PMI results are produced for both service and manufacturing sectors and reflect business conditions. Numbers at 50 or above show business expansion, while numbers below 50 show contraction.

European Union service sector PMI reported on March 22 for March, 2012. The number was 48.7, down from February's result of 49.4. Accounting for deterioration, new orders fell at their fastest rate in three months revealing an overall decline in demand.

PMI numbers for EU's manufacturing sector also revealed weak demand at 47.7 versus February's result of 49.0. With new orders and backlog orders being down, next months results could continue into weakness. Germany and France also posted contracting PMI manufacturing results at 48.1 and 47.6 respectively.

January 2012 European Union industrial production numbers were released on March 14 and show less than encouraging signs. In December, industrial production fell -1.1%, but in January increased .2%. Such a January increase did little to improve yearly results which were down -2.0% in December and remained down in January at -1.2%. Disappointing PMI manufacturing data could signal continuing deterioration in the region's industrial production.

Retail in the region looks very suspect, and even more so with more recent EU service sector PMI data. Italy found itself faltering with a yearly retail decline of- 3.7% in December. This month Italy reported January retail with a gain for the month of .7%, but still a yearly result of 0.8%. EU retail sales record similarly. Reporting early in March for January results, we see a monthly number of .3% and yearly results of 0.0%. Notable here is that December monthly and yearly numbers were -.5% and -1.3% respectively.

Asian Economies Have Their Problems

Outside of Europe, China industrial production slowed quarterly in January/February to .70% from a previous 1.1% gain. Yearly numbers are also down to 11.4% from a previous 12.8%. China's retail sales show yearly weakness for the same period at 14.7% versus a prior gain of 18.1%.

Japan released its All Industry Index on March 21 showing January results. The index is akin to GDP in that it combines output from various sectors such as agriculture, construction, public sector and industrial output. Month over month, bottom line is -1.0% versus December’s 1.3% advance. Year long data show December at 0.0% with January at -0.2%. Perhaps an acceleration of decline.

U.S. On Its Economic Cusp Of Lead Or Not

Looking at some leading indicators in the U.S. are Federal Reserve Bank regional surveys. Among these so far this month are the Richmond Fed Manufacturing Index, Dallas Fed Manufacturing Survey, Empire State Index, and Philadelphia Fed Survey.

These Federal Reserve products are monthly, but limited in data population. This makes the data more anecdotal, but with corroboration among other surveys and evidence, a good idea.

Out of the four Fed regions reported, data generally shows a decline in new orders, shipments and delivery times. All tell of weakening future demand.

Namely, the Empire State Index showed the strongest result with a fourth consecutive monthly increase. Still its new orders, shipments and unfilled orders declined this month, while delivery times actually increased. Not as busy this month, except for delivery times on declining demand. Which will go into next month, as a liability. Or, might appear this month on prices paid….

Prices paid for raw materials increased steeply and at their highest level since summer of 2011, when commodities were very high. Yet, prices received in the current period for manufactured products declined. Seems telling of a consumer’s line in the sand.

Compare Empire State results with the Philadelphia Fed Survey. Very similar, but prices paid and received are both down. Also down are new orders, shipments, unfilled orders, while delivery times actually decreased. Again not very busy this month. Overall, next month is not looking firm.

East Coast dynamics ultimately have petroleum refinery closures that must be taken into account.

Richmond Fed Manufacturing Survey says there is an essential decline in demand. Its results are like the others in terms of new orders, shipments, unfilled orders and delivery times.

But Dallas Fed Manufacturing Survey results show a product of petroleum drives. While its headline number shows a decline in business activity, its production index is sustaining. The difference is probably petroleum activity versus the rest of the economy. For production activity, mixed results are noticed. Unfilled orders, shipments and delivery times, and capacity utilization are increasing. But new orders are down.

All told, global economic conditions are slowing. U.S. economic conditions are slowing. Still, in the U.S. there are powerful economic generators needed by the world.