Shocks and Surprises, Week Ending November 18th

The signature development of the week was the way in which the US numbers continue to arrive stronger than the market expect, whilst economists are finally getting to grips with the sharp deterioration in European numbers. More generally, the US and to a lesser extent Asia, are both managing to survive or even ignore the prospective collapse of Europe's economy. Global economists everywhere and always talk about 'decoupling', and they're almost always wrong. Expect this to be the latest iteration.

For the eighth week in succession, in aggregate data from the US came in surprisingly stronger than expectations. But this week, the sectoral range of positive surprises was positively comprehensive, notably encompassing those parts of the US economic picture which are most routinely written up, or written off, as structurally depressed:

• Real estate markets: Housing starts rose 3.9% MoM, whilst building permits jumped by 10.9% MoM, whilst, separately, the National Association of House Builders Index rose to its strongest level since May 2010.
• Labour markets: Initial unemployment retreated to their lowest levels for seven months. In this context we also have to remember that the previous week's JOLTs Job Openings gave its strongest reading since August 2008.
• Retail sales: Excluding auto sales, these rose 0.7% MoM, which was the strongest monthly reading March.
• Industrial sector: Capacity utilization ratios (the principal indicator of profitability) rose to 77.8%, which was not only a surprise, but also the best reading since July 08. Industrial production growth of 0.7% MoM (motor vehicles up 3.1% MoM) was also unexpectedly strong, as was the Leading Indicator which, at 0.9%, was the strongest reading since March.

There are strong fundamental reasons to prepare for an upside growth shock in the US in the coming six to nine months, and the high-frequency data is merely confirming that it is slowly emerging.

These days, a European economy has really go get to work hard to shock on the downside. Consider some of the data this week which managed to come within a consensus which now embraces spectacular collapse:

• Italy reported an 8.3% MoM contraction in industrial orders, yet still managed to stay within the consensus range of expectations!
• European new car registrations fell 1.8% YoY,
• Zew Survey of German economic expectations, which fell to minus 55.2

Nevertheless, even with economists' expectations so pessimistic, they are still more cheerful than other Europeans, which allowed several indicators to disappoint. My favourite was the Zew German survey of economic expectations of the Eurozone, which fell to minus 59.1 – Angela Merkel's warning that this is Europe's worst moment since World War 2 evidently didn't fall on deaf ears. The British too were similarly embracing the imminence of catastrophe, with the Nationwide consumer confidence survey collapsing to levels unseen even at the worst points of 2009.

By contrast, it was a quiet week for Asia, with only a mild bias towards disappointment. In China, both the MNI Business sentiment survey flash reading, and the Conference Board Leading Indicator (late – for Sept), are probably best classified as 'mildly disappointing' without being surprising. Both suggest moderating growth (no surprise there), with only the new orders index of the MNI survey showing actual contraction. In Japan, Tokyo condo sales (down 9.3% YoY) disappointed, as did readings of capacity utilization, but the more important readings of industrial production and machine tool orders passed much as expected.

Singapore, however, produced two shocks which suggest it continues to slow faster than expected: domestic non-oil exports fell 5.9% MoM sa, and fell 16.2% YoY, and retail sales rose only 0.3% MoM and 3.1% YoY. Singapore's data has consistently been weaker than economists' expectations since October now.