U.S. Pre-Tariff Strength

U.S. Pre-Tariff Strength

More signs of a strong U.S. economy before tariffs kicked in; European inflation was good news for pessimists; Fourth time’s a charm for Merkel; China factories powered forward.

“I’d like to see the dollar a wee bit stronger than it is currently"
Incoming White House economic adviser Lawrence Kudlow

U.S. growth check: Pre-tariff edition. The headline figure for February’s month-over-month retail sales growth disappointed, at -0.1%, but ex- gas and autos, the number was a solid 0.3%. The same for housing starts, with headline growth disappointing at -7.0%. However, the shortfall was due mostly to multi-family units; single-family starts were solid.

But on balance, the figures brought more cheers than jeers. The industrial sector and its subset in manufacturing both beat estimates, capacity utilization rose to 78.1%, beating estimates. And one number closely watched by former Fed Chair Janet Yellen continued to show strength; the “quits rate”, a measure of “voluntary job separations initiated by the employee”, though down two-tenths of a percent below its 2017 peak of 2.3%, remained clearly on a growth path for the full year 2017 in the context of a solid above-expectation growth of 645k in job openings, to an all-time record of 6.31 million. The job opening figures are from January, but strong follow-through figures are now expected for February.

European inflation: Good news – for pessimists  The disappointing inflation number for EU-wide consumer prices of 1.1% was a mixed blessing. As an indication of economic recovery, the figure was disappointing and below the European Central Bank (ECB) goal of 2%.  But the major worry among many observers is less about current growth than about a premature ending of the ECB’s aggressive bond-buying program.  And in that framework, a disappointing figure was widely viewed as a signal to the ECB to keep the aggressively stimulative program in place.

Germany: Fourth time’s a charm. Angela Merkel managed to create a ruling coalition after months of post-election wrangling, leaving her status as the longest-ruling European leader intact. But the agreement of her party with the Social Democrat Party (SPD) required significant concessions in terms of platform and appointees. It’s too early to tell what the impact will be on Merkel’s maneuvering room.

But one positive outcome is already clear: Germany is forthrightly pursuing a policy alliance with France on matters of concern to the European Union as a whole. Both Chancellor Merkel and her new SPD Foreign Minister Heiko Maas wasted no time heading to Paris to meet with their opposite numbers. Given the weakness of both France’s and Germany’s coalition governments, it’s unclear that significant outcomes will emerge. But their joint attempts at alignment are clear.

China: Solid growth in times of challenge Industrial output rose 7.2% from the same period a year earlier, according to the National Bureau of Statistics, solidly beating the estimated figure of 6.1%, as well as the previous month’s equivalent figure of 6.2%.  Steel, coal and power output were responsible for the strength, despite a campaign against heavily polluting industries. Though January figures are understood to be inexact due to the timing of the lunar new year holidays, the strong figures are likely to add fuel to the tariff debate taking place in the U.S., and now elsewhere.



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