Today some doubts (temporary I suspect) on the "growth is stronger than expected" story

01/06/2014 2:26 pm EST


Jim Jubak

Founder and Editor,

A reminder today that financial markets in the U.S. and the rest of the world may have gotten a bit ahead of themselves recently in their optimism about economic growth for 2014. Projections for better than expected growth in the U.S. and EuroZone economies—and for stable growth in China—are just that, projections, today’s actual data demonstrates. That actual data isn’t especially bad—it just makes a point that stronger than expected growth isn’t as much of a sure thing as the most optimistic recent projections had been discounting.

First, according to the Institute for Supply Management’s index, the U.S. service economy weakened in December. The non-manufacturing index dropped to 53 in December, a six-month low, from 53.9 in November. Economists surveyed by Bloomberg had projected that the index would climb to 54.7. Keep in mind that in this index readings above 50 indicate that a sector is expanding (and that this isn’t the most probing of surveys,) but given the recent belief that the U.S. economy was running stronger than projected, this is a disappointment—for today.

Another bit of economic data makes an interesting contrast with the ISM’s service sector survey. In December new orders fell in 11 industries in the service sector, according to the Purchasing Managers Survey. On the other hand, according to the U.S. Commerce Department, orders in the manufacturing sector rose by 1.8% in November. That follows on a 0.5% drop in orders in October that was itself revised upward to a smaller decline than originally reported.

I can see three possibilities here: First, manufacturing may be growing more strongly than services; second, the lag in the manufacturing data (November vs. December) could be significant; or third, we’re simply trying to torture too much meaning out of isolated data points. (Personally, I go with #1 and #3. We’re due to get jobs numbers on Friday and that release is likely to trump all today’s data.)

But the disappointing growth story today isn’t limited to the United States. Add China and Germany to the narrative. Emerging-market stocks dropped to a four-month low after the HSBC Holdings/Markit Economics purchasing managers index for the non-manufacturing sector dropped to 50.9 in December. The MSCI Emerging Markets Index is now down 3.1% for 2014 after a not-so-sterling 2013. The Shanghai Composite index dropped 1.8% to its lowest level since August 8.

In Germany another Markit Economics index showed that the country’s service sector slowed in December. The index dropped to 53.5 in December from 55.7 in November. Economists surveyed by Bloomberg were expecting a slight move upward to 54 in December. For the EuroZone as a whole the index for the service sector fell to 51 in December from 51.2 in November. The German DAX index retreated 0.08% today after dropping 1.6% last week. The index was up 25% in 2013.

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