Unemployment was down, Oil prices were up, Eurozone PMI Data was up, and the markets were… down???
PMI Data out of Europe impressed. European composite PMI came in at 54.3 for August. Europe has continued to impress with the strides it has been taking as a result of its bond purchase program. At the same time China has moved in the opposite direction. National Manufacturing for China fell to 49.7 from 50, officially putting them in contractionary range (under 50). The most discouraging fact is that this is the state reported number which could be accused of being falsely positive to benefit the state[1].
Adding to skepticism last week was the August unemployment report. To be clear, the data was positive for the economy, but negative for loose Federal Reserve Board (FRB) monetary policy. The unemployment report fell .2 to 5.1% for August. In addition, the much scrutinized under employment rate fell to 10.3%, its lowest level since 2008[2]. Many feel that this month’s unemployment numbers may be the final piece the FRB needs to begin raising interest rates in September.
Many view a rate increase as a tightening of monetary policy. While accurate, it is also rate normalization. Being at zero bound does not give the FRB any normal mechanism by which to stimulate the economy when the next economic slowdown occurs. Something to remember is that a rate increase in September will be shortly followed by the strength of 4th quarter consumer spending. The FRB is likely hoping that the consumer spending of the 4th quarter will act as a buffer to their rate hike. Remember a rate hike is a vote of confidence from the FRB in the US economy.
Much of the data across the US and Europe last week was positive and encouraging for the global economy. China, as the 2nd largest economy, is definitely cause for concern. China’s slowing consumption creates concerns for several countries exports line of GDP. To date, the China slowing has had little impact to the bottom line for US exports. That being said large multinational companies are most exposed to China’s slowing and currency woes as of late.
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[1] www.investing.com – economic calendar
[2] www.mfs.com – week in review