Eurozone and US Data Show On-Going Vulnerabilities

US Factory Orders and Eurozone Retail Sales both rang-out cautionary bells for their respective economies.

There was some celebration of both on the day, as they could, of course, have been worse.

Eurozone Retail Sales were at least positive. Up 0.3%. This was however in contrast to the rather optimistic market expectations of a 1.0% gain.

The real story is the trend basis of this data. Which has consistently been flat to falling through the past year. Despite higher prices. In fact, Eurozone Retail Sales are down 2.3% on the year. So there were grounds for market disappointment. Initial enthusiasm on a positive number, quickly waned.

The latest Eurozone Retail Sales data confirms the headwinds emanating out of the Ukraine conflict continue to impact consumers significantly. Placing a dent, at least for the moment, in the growing optimism that had surrounded the idea that somehow the European economy was successfully compartmentalising the war.

This notion had allowed for a strong recovery in equity markets and the Euro in recent months.

Should the run of other data series begin to confirm an alternative scenario of a tiring rebound, that will still settle lower in overall economic activity, there may be some adjustment to the recently elevated equity pricing.

US Factory Orders fell a whopping 1.8%, but this is very much a case of how appearances can be deceiving?

Firstly, the market bizarrely initially focussed on this outcome being marginally better than the feared 1.8% drop that was expectations. Really?

However, where it gets interesting is that the drop was largely due to the swings and roundabouts of aircraft orders. Which were down some 54%. So should we celebrate then? Excluding transport, Factory Orders actually rose 1.2%. That is a big difference in ascertaining just how positive the outlook for the US manufacturing sector generally is.

As it turns out, and this is fun, last month’s headline was an increase of 1.7%, but excluding transport, actually fell 1.2%. Whereas the latest month, saw a headline of down 1.6%, but excluding transport rose 1.2%. As you can see, there is something for everyone in this data. No wonder people are seeing whatever it is they wish to.

Again, this is why the trend trajectory of any data series, remains paramount to any hope an accurate picture of the past. Let alone, thinking about how these data series may evolve into the future given real time, real world, developments. Which can only be ascertained through the application of commonsense while looking out the window at Main Street. Away from the ivory towers of Wall Street.

Overall, US Factory Orders have been trending lower for the past 3-6 months. Yes, ex-transport, the number was positive, but it does not change the volatility and softness that remains prevalent across the factory and manufacturing sector.

Economic data has most certainly delivered glimmers of hope recently, but there remain serious questions around the sustainability of the uptick seen.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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