EmailThe Euro-zone economy is dead in the water. It isn't quite as dead as feared, however, so that is seen as good news.
Euro-zone real GDP fell 0.2% in the second quarter (a 0.8% annual rate of decline in terms of US reporting methods). Germany was up 0.3% but lower than the 0.5% growth in the first quarter, and France flatlined at 0.0% for the third straight quarter.
How this is good news is hard to fathom. Spain, Italy, Cyprus, Portugal, and Greece are in recession with no end in sight. There is no sign of a turnaround anywhere. Industrial production in June fell 0.6% in the euro-zone, indicating that the trend into the third quarter worsened.
There is nowhere near enough growth to even dent the compounding debt problems. The recent global arguments about growth versus austerity policies seem like a bad joke designed simply for partisan sake. Draghi can say all he wants about saving the euro, and interest rates can be cut in Europe, but it won't make much difference. It is going to take a long time to work out Europe's debt problems. Perhaps a very, very long time.
The fact that the euro-zone numbers are 0.1% better for a country or two is meaningless. The "compared to expectations" market game is usually legitimate; this time it obscures the bigger picture. These European GDP numbers are bad.
The situation in the US is better, at least this month. July retail sales rose 0.8% after a revised -0.7% in June. Excluding autos the gain was also 0.8%. The July increase breaks a string of three straight declines.
July PPI was up 0.3% and the core rate was up 0.4%. The core was up 0.2% each of the prior four months so it looks like the Fed doesn't have to worry about deflation. A touch of inflation is preferred by many.
Market volume has been extremely light. Volume yesterday was very close to the level seen on the trading day before the Christmas holiday last year. Futures indicate an up open of about seven points for the S&P 500 index. The recent modest upward drift continues, almost regardless of the news.
Founder and Chairman, Briefing.com
