This is an abbreviated post from our subscription series at Credit Writedowns Pro.
The economic data out of the US, Spain and Britain yesterday were very good and support the idea that all three of these economies are seeing recoveries that are accelerating. Some thoughts on the data below
In the US, we saw two different manufacturing PMIs and auto data. The Markit data were the best and most indicative of the accelerating pattern we are seeing in the real economy. US manufacturing in June expanded at the fastest rate since May 2010. The final reading for June was 57.3, where 50 signals expansion. In terms of forward and coincident subindices, the output subindex rose to 61 from 59.6 and new orders rose tom61.2 from 58.8 in May. These are the highest readings on both subindices since April 2010. Everything in this dataset is positive and we should expect the employment data coming out of the US this month to reflect this.
In the second PMI dataset, ISM had the manufacturing PMI at 55.3, slightly lower than last month’s 55.4. But the subindices were mixed here. Employment was unchanged at 52.8, despite expectations for a rise to 53.2 and production fell to 60 from 61. However, new orders rose to 58.9 from 56.9 in May. Overall, I would rate these data as being bullish for the US economy, though less robust than Markit’s survey.
Finally, data for US sales of most of the major automakers beat expectations. Particularly notable was GM due to the crushingly negative news flow associated with safety and recalls. Sales at General Motors rose 1 percent, despite analyst expectations for GM’s sales to fall 6%.
Overall, the picture we are seeing is employment growth now of 200,000 to 300,000 per month. Strong output and new order numbers in manufacturing and middling increases in personal income and wages. I believe this supports 3%+ growth for Q2 and Q3 but no more than 2% growth on average due to the lack of wage growth and weakness we have seen in retail sales as a result. Personal spending rose 0.2% in May from April, according to the Commerce Department. But the rise, coming after a flat reading in April, was linked to higher prices. Adjusted for inflation, spending actually dipped. And this is the Q2 data that is supposed to get us to 3%+ growth. It is the huge output numbers on both ISMs that are going to get us there, not the end domestic demand or exports, which were weak according to the ISM survey.
Overall, though, on a cyclical basis, the UK, the US and Spain are three economies that I believe will continue to grow at an above average pace through 2014.