February 28, 2014 Patrick Oliver-Kelley

Bumpy world Economy.

Share prices always jump around, but in the end, they are determined by the underlying economy. On balance, it seems that investor pessimism is overdone. Present disappointing numbers do not translate into a stalling US economy. China’s economy is slowing, not slumping and certainly not toward a collapse. Europe and Japan are about to easy further their monetary policies. Global growth will still exceed last year’s pace of 3%.

china economic slow down

The US continues to drive the global recovery and its pick up is not likely to change. Economic figures for January, including employment figures should be taken with a grain of salt. American consumers’ balance sheets are stronger than they have been in years. Low treasury bond yields will translate into lower mortgage rates. The US economy should continue at above trend growth of around 3% in 2014. China’s economy is clearly slowing- how far and how fast? Again China is not slumping, it is slowing. The government has the capacity to prevent a rout.

Worries of a broad emerging market collapse are also overdone. Finally, yet another reason for optimism is that market jitters make bolder monetary action more likely. Investors should recover their nerve as they realize that the bottom is not falling out of the world economy. The global economy is far from healthy, it is wobbly.

US Economy

US government estimates fourth quarter growth with consumer spending and exports slowing, suggests a GDP increased at a 2.4% rate trending lower. The slower growth trend spilled over in to the first quarter of 2014. Inflation continues to worry. Inventories are the largest since 1998. Government spending was revised down, but offset by rises in investment in residential construction, nonresidential structures and business spending

Eurozone

Eurozone GDP increased by 0.3% in the fourth quarter. German GDP rose 0.4% on rising exports and France which looked to be headed towards a recession, rose 0.3% and Italy was barely plus at 0.1%. The big story is the Eurozone unemployment rate.

Unemployment remained unchanged at 12% in January 2014 from 12 % in December 2013.

euro area unemployment

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