AMERIPRISE FINANCIAL, INC. 
Economic Slump Overseas, But the U.S. Keeps Chugging Ahead
11/17/2014 | David Joy
The latest batch of economic data from outside of the U.S. depicts a global recovery that is still struggling to gain traction.
In the third quarter, the Eurozone managed to grow at a quarterly rate of 0.2 percent, and a year-over-year rate of 0.8 percent. That was better than expected, and certainly better than the flat second quarter performance, but hardly robust.
And the disinflationary pressure that triggered a global equity correction in mid-September showed no improvement in October, as consumer prices rose just 0.4 percent during the trailing twelve months, and the core rate rose 0.7 percent.
The European Central Bank has signaled its intention to expand its balance sheet further if things don't improve, and appears headed for a showdown with members opposed to full-blown quantitative easing. The Euro Stoxx 50 index has climbed 3.3 percent in the past month in expectation of additional monetary support, while bond yields have moved lower.
Meanwhile, Japan has fallen back into recession after contracting in the third quarter, as the country struggles to find the right policy mix. A surprise October 31 announcement by the Bank of Japan that it will provide additional monetary stimulus drove the yen lower and stocks sharply higher. In the ensuing two weeks, the yen fell from 109 to 116 versus the dollar, and the Nikkei index surged 6.6 percent. However, on Monday, following the news of the third quarter's contraction, the Nikkei fell 3.0 percent.
A Different Story in the U.S.
By comparison, the United States is an island of relative prosperity. The advance estimate of third quarter GDP showed growth at an annualized pace of 3.5 percent. That total may get revised lower following subsequent trade data, but likely to a pace still above 3.0 percent.
The fourth quarter appears to be off to a good start as well. Manufacturing activity in October climbed to its highest rate since 2011, the economy added 214,000 new non-farm jobs. It was the ninth straight month of job growth in excess of 200,000 for the first time since 1995. And the unemployment rate fell to 5.8 percent, its lowest rate since 2008.
In addition, according to the preliminary reading of the University of Michigan's November survey, consumer sentiment is at its highest level since 2007, before the onset of recession.
For the U.S., consumption is the holy grail of economic activity. And the holiday shopping season is the holy grail of consumption, at least in terms of retail sales. Consumers are certainly feeling better as jobs are growing, gasoline prices are falling, and stock prices are at their all-time high. Wages are still not growing much in real terms, but more jobs means more total spending, and the fall in gas prices is partially compensating for the lack of wage growth.
Consumers were a little cautious in the third quarter, however. Personal consumption rose at just a 1.8 percent pace, the same average pace of the year's first half, but down from the 2.4 percent pace of 2013. As a result, according to the Bureau of Economic Analysis, the savings rate rose to 5.5 percent from the 5.2 percent first half average and 4.9 percent rate in 2013. But, retail sales rebounded in October from a decline in September, with gains in eleven of the thirteen sub-categories, offering some encouragement that consumption growth in the fourth quarter will be strong enough to keep the U.S. economy chugging along, despite little help from overseas.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks.
The EURO STOXX 50 is a market capitalization-weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. The universe for selection is found within the 18 Dow Jones EURO STOXX Supersector indexes, from which members are ranked by size and placed on a selection list.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2014 Ameriprise Financial, Inc. All rights reserved.
11/17/2014 | David Joy
The latest batch of economic data from outside of the U.S. depicts a global recovery that is still struggling to gain traction.
In the third quarter, the Eurozone managed to grow at a quarterly rate of 0.2 percent, and a year-over-year rate of 0.8 percent. That was better than expected, and certainly better than the flat second quarter performance, but hardly robust.
And the disinflationary pressure that triggered a global equity correction in mid-September showed no improvement in October, as consumer prices rose just 0.4 percent during the trailing twelve months, and the core rate rose 0.7 percent.
The European Central Bank has signaled its intention to expand its balance sheet further if things don't improve, and appears headed for a showdown with members opposed to full-blown quantitative easing. The Euro Stoxx 50 index has climbed 3.3 percent in the past month in expectation of additional monetary support, while bond yields have moved lower.
Meanwhile, Japan has fallen back into recession after contracting in the third quarter, as the country struggles to find the right policy mix. A surprise October 31 announcement by the Bank of Japan that it will provide additional monetary stimulus drove the yen lower and stocks sharply higher. In the ensuing two weeks, the yen fell from 109 to 116 versus the dollar, and the Nikkei index surged 6.6 percent. However, on Monday, following the news of the third quarter's contraction, the Nikkei fell 3.0 percent.
A Different Story in the U.S.
By comparison, the United States is an island of relative prosperity. The advance estimate of third quarter GDP showed growth at an annualized pace of 3.5 percent. That total may get revised lower following subsequent trade data, but likely to a pace still above 3.0 percent.
The fourth quarter appears to be off to a good start as well. Manufacturing activity in October climbed to its highest rate since 2011, the economy added 214,000 new non-farm jobs. It was the ninth straight month of job growth in excess of 200,000 for the first time since 1995. And the unemployment rate fell to 5.8 percent, its lowest rate since 2008.
In addition, according to the preliminary reading of the University of Michigan's November survey, consumer sentiment is at its highest level since 2007, before the onset of recession.
For the U.S., consumption is the holy grail of economic activity. And the holiday shopping season is the holy grail of consumption, at least in terms of retail sales. Consumers are certainly feeling better as jobs are growing, gasoline prices are falling, and stock prices are at their all-time high. Wages are still not growing much in real terms, but more jobs means more total spending, and the fall in gas prices is partially compensating for the lack of wage growth.
Consumers were a little cautious in the third quarter, however. Personal consumption rose at just a 1.8 percent pace, the same average pace of the year's first half, but down from the 2.4 percent pace of 2013. As a result, according to the Bureau of Economic Analysis, the savings rate rose to 5.5 percent from the 5.2 percent first half average and 4.9 percent rate in 2013. But, retail sales rebounded in October from a decline in September, with gains in eleven of the thirteen sub-categories, offering some encouragement that consumption growth in the fourth quarter will be strong enough to keep the U.S. economy chugging along, despite little help from overseas.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks.
The EURO STOXX 50 is a market capitalization-weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. The universe for selection is found within the 18 Dow Jones EURO STOXX Supersector indexes, from which members are ranked by size and placed on a selection list.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2014 Ameriprise Financial, Inc. All rights reserved.
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