Consumer sentiment is rising and the economy entered the fourth quarter with the most momentum it has had in years. The 3.9% growth rate in the third quarter means that the US grew had its best six months since 2007. However, durable goods orders continue to disappoint. The jobs market is too, disappointing. The housing market seems to be moderately improving. Mortgage rates below 4% with no increase anticipated, should help provide a tailwind to the housing market generally.
A worrying global manufacturing slowdown in Europe, in China and in Japan may give us reasons for pause.
Inflation fell again and unemployment both in the UK and in the Eurozone fell. There was positive news from the UK, as unemployment also fell. Last week’s preliminary November data for the German Purchasing Managers Index (PMI) highlights the looming threat. Although business activity remained positive, the latest PMI shows that growth is weak, and getting weaker. “The combination of weak output growth, ongoing spare capacity and a lack of new order wins (despite a further reduction in charges) paints a worrying picture of the underlying health of the German economy,” advised an economist with Markit Economics. “The average PMI reading for the final quarter of the year so far is the weakest since third quarter 2013, suggesting that the German economy may fail again to see any meaningful growth in the fourth quarter, after GDP expanded by a marginal 0.1% in the three months to September.” Germany’s sputtering engine inevitably deepens the pessimism about the continent overall. Therefore, the fourth quarter GDP estimate for the Eurozone is effectively flat.
A mild improvement in the forward-looking benchmark would be welcome, of course. But today’s numbers overall aren’t likely to offer much relief from the view that Germany is flirting with economic stagnation.
The economic environment may be changing again. Only this time, the change is less dramatic and is occurring out of the headlines. Over the last 40 years, Asia has been home to the world’s fastest growing economies. There are reasons to suspect regional disappointment. Demographic trends, faltering economic growth are just beginning to emerge. Asia has already entered a period of slower groeth. Excluding China, growth as cooled to 5.5% recently, half of the peak rate achieved in 2007. Favorable demographics and surging exports will no longer be significant source of growth. Asia cannot continue leveraging with debt to support growth. It must have stronger productivity growth, but that will require structural reforms to the economy It not clear that the political will to reform is present in the countries that need it most.