Bernanke binge boosts US & Global Economy into new leg higher

Bernanke’s 2013 exit may be well timed

After all as his near solo effort to add or influence unlimited reserves to all central banks is showing renewed signs of success.

It takes a long time to deleverage the private economy after decades of debt binging. Central Banks have kept providing interest rates artificially low elevated excess reserves to encourage risk taking for over 5 years.

Since the 1st leg in the 2009 Global recovery stalled in 2011, it appears that a new recovery leg is well underway as of 2013.

In the US we are impressed by the low level of inventory yet very high levels of future orders and solid job growth—a very positive mix. US manufacturing is witnessing its best surge higher since 2009 and sits at the strongest levels since the spring of 2011.

New orders don’t have to remain above 60, but like late 2009 these levels are a very strong sign of demand and an effort to restock inventories is coming. Commercial and industrial loan de-mand is growing at a double digit pace.

Europe Joins the Party of Growth

After the mid 2009—mid 2011 Euro growth phase ended it was a desperate 2nd recession for 2 years as southern Europe burned with riots and massive unemployment. As of 2014 virtually every country in Europe has been edging into expansion mode. Even Greece appears close to a modest growth phase. In addition the UK and the US are witnessing 6 year highs in car sales and 2 years of rising consumer sentiment. Bank loan officer surveys are quite optimistic.

Evidence of a better economy

Last summer we highlighted the unreported surge in the world economy. Europe has been trending positive all year after bottoming out from their 2nd recession in 6 years. The US along with Japan in 2013 have led the world in lifting all boats despite the apparently slow growth we all hear about.

Manufacturing continues to beat expectations in the US with an especially strong New Order Index and backlogs.

Employment is on a healthy growth pace even though job security remains low. Cheap credit with a 50 year lows in inflation and a slow economy have created pent up demand. The longer consumers and business hold back on borrowings and capital expenditures, the longer this recovery can extend before overheating.

All of Europe led by the UK , Germany and the Netherlands confirm that for the first time since the 2009-2011 recovery the global economy is increasingly in sync which adds to the power and rate of expansion here in the US.

Now we just need emerging markets to grow faster. Watch their stock markets and the EEM ETF stock symbol for an early warning.

Economy – Greece is the Word

Now that Europe is no longer slowing the Global economy and actually a positive factor we see 3 year highs in output in Europe. While Northern Europe is always the engine driving Europe, now even Spain is hitting a 7 year high in manufacturing, Ireland and the UK are surging and Italy is finally expanding. Other than poor France the trends we foresaw last summer are continuing. We will also note our lonely forecast in the 3rd Quarter 2013 saying that the whipping boy of Europe—Greece—would enter an expansion in early 2014 and now it has. Of course there are still riots in the street and our Greek friends still tell us personally the economy there is awful.

However, rising unemployment from 8% to 24% during the “Great Restructure” and then to almost 28% in 2013 during the return to growth march is merely a very dramatic but normal process of painfully leaving the bankruptcy of socialism to find a labor balance where companies can once again make profits without an impoverished Government subsidizing their existence. 2014 should be the year that unemployment peaks and begins to fall in Greece. Unfortunately the masses at the back of the train see the light at the end of the tunnel long after the economic train has emerged.

However, these are not boom times, just better times than before. A near term warning is re-vealed by the Baltic Dry Index that indicates a sharp fall in shipping in the first half of 2014 that hints the Global export economy and emerging markets have slipped. Inventory restocking and should boost shipping rates later in 2014.
US Economy It was clear that the US economy aided by the Euro recovery we foresaw last summer would accelerate in late 2013. Auto sales at 7 year highs, leisure, manufacturing and other highlights surged. Inventory restocking contracted in early 2014 due to weather that re-duced car sales, job hiring’s, housing and retail sales in general. We were expecting a harsh US winter harsh, but a strong rebound effect by mid-2014.

Reviewing the economic health of the US and Europe reveals no concerns for now. Manufacturing and new orders continue to expand and early 2014 weather weakness has been completely discounted. US PMI fell in January but both the US and European manufacturing and service indexes have rebounded sharply in the 2nd quarter 2014. Even southern Europe has joined the party with PMI’s in Spain and Greece expanding as we predicted last summer and sky high default level interest rates have fallen to normal levels of safety and confidence. With new orders and deliveries surging while inventories remain weak certainly tells us that employment and growth will remain buoyant for the foreseeable future.

US Jobs looking up

Transports, leisure and engineering are among the job leaders while the insecurity as measured by the “quit rate”, construction, manufacturing and Government jobs still look weak. But overall while the job market confidence and wages continue to behave as if in a recession, there is steady improvement on a relative basis that will cause more wage inflation in skilled positions while the unskilled and Liberal Arts majors struggle. As long as current trends continue, by 2015 we should see a relatively “strong” labor market with rising median incomes for the first time in 6 years.

Keep watching for the Michigan consumer sentiment >90 as a sign of vibrancy in the US. 90 to 95 is likely when the headlines of a full recovery will be declared. Unemployment rates in general are a poor measure of job market health. Sentiment, quit rates and wage inflation will be a better indication. European Central Bank quantitative easing will finally generate faster job growth in Europe as well soon.

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