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Surprise Economics - Global Weekly Brief

Surprise Economics -

Global Economics Weekly Brief

Economic data retains its capacity to surprise. Just as the US Federal Reserve indicated that it does not see the need for additional quantitative easing (QE), the US labour market disappoints. Indeed Ben Bernanke, the Fed governor, has been warning for months that the US labour market remains vulnerable. He’s right. But one month’s reading will not significantly change the Fed’s view on QE. The ECB has also declared that it has done enough for the time being and has advised governments to undertake necessary economic reforms while markets are in a calmer mood. In other words, the world’s two major central banks said “we’ve done out bit, now it’s up to you.”

So can the economies cope? Despite weaker labour market data it’s clear the US is in better shape. In contrast, survey data suggests activity in the Eurozone is contracting, with even the stronger economies beginning to struggle. Plus, the banks globally are stashing cash at the highest levels recorded!

UK private sector improves in March. This week saw the release of the March Purchasing Managers’ Indices (PMI) - a key survey of private sector activity. The UK’s services, manufacturing and construction sectors all showed improvement. The manufacturing sector gave the highest reading since last May and the construction sector rose to the highest level since October 2007. Most importantly the services PMI rose from 53.8 to 55.3 (a reading above 50 signals expansion), which is in line with the historical average and points to a decent pace of expansion within the sector. The surveys suggest that the UK economy rounded off Q1 on a positive note and economic contraction over the quarter is increasingly unlikely.

Weak output figures are at odds with improving survey data. UK manufacturing output fell 1.0%m/m in February after a 0.3%m/m drop in January. This is the largest fall in 10 months. In annual terms production fell 1.4% compared to February 2011. Production data can be volatile and are frequently revised, but it’s odd that it differs so much from the PMI. The PMI is more forward looking so hopefully the improved data translates into a better manufacturing output figure in March. The UK needs more exports at a higher level to combat the high imports!

Eurozone private sector activity struggling. The Eurozone’s composite PMI for March, encompassing both the manufacturing and services sectors, was confirmed as 49.1, slightly higher than the initial reading of 48.7 but weak nonetheless. The worrying trend is that weakness continues to spread from the periphery to the stronger core economies.

US private sector activity remains in good shape. The US PMI for the manufacturing sector rose from 52.4 to 53.4 in March, reversing most of February’s drop. Encouragingly, growth was broad-based with 15 of the 18 surveyed sectors reporting growth. The services PMI fell from 57.3 to 56 but this is still a solid figure and above the average reading of the past 20 years.

The pace of US job creation slows rapidly.
The sense of optimism surrounding the US economy was dented by a relatively weak month for employment creation. Just 120,000 jobs were created during March, less than half the average gains of 246,000 over the previous three months. Unemployment fell from 8.3% to 8.2% but this had more to do with people giving up looking for work than businesses hiring. The US continues to post a decent pace of economic growth but pitfalls lie ahead, including elevated petrol prices, the overhang of houses in foreclosure and the fiscal tightening scheduled for next year. Watch very closely the lack of industrial activity and more unemployment!

Hopes of additional quantitative easing from the US recede. The minutes of the latest meeting of the US Federal Reserve reveal that a third round of quantitative easing (QE) appears less likely for this year. But a deterioration in the US economy would change the minds of members and there is still the sense that the threshold for further stimulus is low. Markets reacted negatively to the news after years of bathing in the balmy waters of central bank liquidity. The upside is, of course, that the Federal Reserve increasingly believes the economy is able to stand on its own feet without further support. That said, the Fed still sees rates unchanged “at least through late 2014.”

China’s manufacturing sector still struggling. China’s manufacturing PMI fell from 49.6 to 48.3 and has now been below 50 for five straight months. This is the worst stretch for the world’s second-largest economy since the financial crisis induced collapse in world trade in late 2008/ early 2009. The new orders component is also below 50 and moving in the wrong direction, which is just as worrying. Chinese policy-makers have been reluctant to ease monetary policy aggressively so far this year. But weak readings in the PMI will likely nudge them in the direction of further stimulus.

The Euro currency will continue to suffer in the hands of Greece, Portugal, Spain, Italy and Ireland followed by France who are `all` in `deep` financial difficulty as first stated here in January 2008. Who will leave the euro currency first? What future as the Euro? Watch this space!

What `all` European countries need to understand is about how to operate within financial budgets, please click on the link below;

Online Financial Training


We have another global crisis that needs urgent attention by skilled and experienced people who can do the job right!

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More Economics and Business Inspiration:
`Accelerate with Impact` -
by Colin Thompson ISBN: 978-1-84549-289-2

Accreditation: UK Registered Learning Provider:10025755

Note: About the Author Colin Thompson

Colin is a former successful Managing Director of Transactional/Print Manufacturing Plants, Print Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives and Non-Executive Director, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM's/Software and over 400 articles published on business and educational subjects worldwide. International Speaker and Visiting University Professor.

Surprise Economics!

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Comments on this item:

12-04-2012 15:20:18
Even with the issues that the USA faces its still the safest place for investments.

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