Tuesday, April 3, 2012

Good Ol' USA, Best House in a Bad Neighborhood

As the data continues to come out for February and March, we're continuing to see strength in the USA. This morning we saw two more pieces of information that give us some insight into the state of the US economy. One of the advantage of living on the east coast is you get to see these events live, observe market reactions as they happen, and make pre-market decisions based on them. Something you cant do while living in the west...unless you want to get up at 5am.

First at 8am was the ICSC Retail Store Sales report, which showed a 3.8% w/w increase and a 4.2% y/y increase. While some parts of this was likely due to warm weather and holidays, the trend in retail sales over the last half a year has been remarkable. As most investors know, consumer spending in general is one of the key drivers of GDP, and retail sales is a big component of consumer spending.

Around 10am this morning, we got the March ISM New York Report on Business, which showed 67.4 vs 63.1 in February. The report says "March marked the fifth straight month that the Current Business Conditions index grew faster than the prior month, unprecedented in the survey's 19-year history"

There are now more indicators telling us there is a storm brewing across the Atlantic as well, and not just in the debt troubled nations of the Mediterranean.

In the United Kingdom, the British Chambers of Commerce is forecasting full year GDP growth of 0.6%, less than the government's 0.8% prediction.

In Spain, the number of unemployed workers rose 0.8% in March to 4.75 million, 9.6% higher than March 2011. The official unemployment rate stands at a staggering 23.6%, highest in the European Union.

In Germany, the powerhouse of the European economy, the manufacturing PMI fell to 48.4 from 50.2 in February, well within the range indicating contraction in the manufacturing sector (under 50). While this number can go as low as 40 before a recession occurs, anything under 50 is typically looked upon as very weak. There are now many sources who believe Germany will enter a recession sometime in 2012

As a whole, the Eurozone Final Manufacturing PMI for March stood at 47.7 vs 49 in February. This is the 8th consecutive month of readings below 50. New orders shrank at a faster rate than February, leading to output cuts and job losses. It certainly appears that the Eurozone slowdown is accelerating, typical of a economical feedback loop.

Through all this, the US continues to be the shining star in the world. Housing is showing signs of a bottom. Employment is picking up dramatically. We will see over the next quarter or two whether the good ol' USA can help bring the world out of this slump and lead the recovery.

One thing is certain, it has never paid off to bet against America in the long term.

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