As the world seems to lose its collective minds over Greece, economic conditions in Europe and the US seem to improve… But who cares when you have Greece!
US
There were several pieces of good news last week as continued signs of strengthening show up in our economy.
GDP for the first quarter while negative was revised up to -0.2%[1]. The benefit here is that the second quarter performance will not have to be as large to offset the negative winter we had.
New home and more importantly existing homes sales surged for May. This falls in line with consumer sentiment, which grew to 96.1 in June from 94.6 in May[2].
Personal spending advanced 0.9% and personal income increased 0.5%. As a result, what does inflation look like? Luckily it seems we are still off the tipping point where corporate capacity turns into inflation. As reported two weeks ago Core PCE sits at 1.2% annualized[3].
The two domestic drawbacks of note in economic data came from PMI data. Manufacturing and Services PMI data came in at 53.4 and 54.8 respectively[4]. Both down from the prior month, however well above the 50 mark that delineates between expansion (over 50) and contraction (under 50). A softening of this data is really an indication of future earnings 6 to 12 months out.
Eurozone
Greece is going to get its own heading, lucky guy. As for the Eurozone as a whole stocks were little changed as everyone collectively held their breath on news out of Greece.
However, it would appear that the European Central Bank’s (ECB) attempts at Quantitative Easing (QE) are proving successful. The program that started in January has produced ever improving PMI data for the EU. Manufacturing and Services came in at 52.5 and 54.4 respectfully[5]. Figures that advance each month moving further away from the 50 mark.
Greece
Oh Greece… No 11th hour compromise as of yet. It is likely to be delayed until after the current deadline of 6/30 and pushed to a 7/5 public referendum where Greek citizens vote to except or decline creditor terms. A “no” vote (which polling indicates is unlike) would decline creditor terms and all but guarantee a Greek exit from the EU.
Technically the referendum will occur after Greece is already in default; which should create an interesting issue in and of itself. The International Monetary Fund (IMF) is not granting the 5 day extension requested for the referendum.
For comparison purposes, Greece’s GDP is roughly equivalent to that of the state of Oregon. Five years ago contagion effect was a very real concern; however today the potential is greatly mitigated. Stronger surrounding economic conditions as well as their debt being greatly localized to the IMF allow a default to remain localized.
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[1] www.mfs.com – week in review
[2] www.investing.com – economic calendar
[3] www.mfs.com – week in review
[4] www.investing.com – economic calendar
[5] www.investing.com – economic calendar