Ever decreasing circles = ever decreasing growth potential!

It is usually dangerous to get caught up in the present: bad data and lower markets generally = greater opportunity.  And of course, this is a good time for bad data.

So why is bad data “bad” at the moment?  

  1. Simply put we have no fiscal or monetary leeway, short of QE, to drive the economy forward, so all the usual stimulus you would normally get in a downturn is out of the picture.
  2. Secondly, debt levels, cannot reset lower with weakening economies: lower growth places further stress on sovereign debt markets and the ability of the government to spend.
  3. Thirdly, we are in the 5th year of depression like economic conditions with high levels of employment in Europe and the US, and we are seeing a worsening of capital expenditure plans, critical to the supply side growth rates.  In other words as the data worsens, not only does current growth weaken, but so does future potential growth.

Note a number of negative data points for the week.

French consumer confidence hits record lows and S&P downgrades 3 banks.

Kansas City Fed Survey : “…the survey revealed that Tenth District manufacturing activity declined slightly in October, and producers’ expectations for future activity fell considerably but remained slightly positive.”

Chicago Fed National Activity Index – slight improvement in September from a downward revision in August.  The 3 month moving average continues to highlight the weakness and hence vulnerability of the business cycle.

South Korean GDP slowed to 0.2% in Q3:  capital investment fell by 4.3% and gross fixed capital formation has fallen 4 quarters out of 5. – source data.

European money supply growth continued to slow, while the M3-M2 component continued to contract along with loans to the private sector.

The German IFO business climate indeces showed further declines with the most interesting points being the disparity between expectations (universally wide in all the major components – manufacturing, wholesale, retail and construction) and current conditions and the fact that the two areas of relative strength, hitherto, retailing and construction look to be rolling over.

The further declines in the European manufacturing PMI index and a still weak service sector PMI – provisional data.  Of note is the decline in the respective German provisional PMIs (manufacturing 45.7, services 49.3).

Retail sales in Canada excluding gasoline fell 0.1% in August, including gasoline, they rose 0.3%.  In real (volume) terms retail sales fell 0.3% in August.

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