Yesterday and today I was able to catch up on my reading of the economic goings on in the world. Lots is going on out there, but China, it seems, is once again the star attraction for the financial media.
Chinese industrial production rose by 9.3 percent in April, the lowest level since May 2009, while retail sales growth slowed to 14.1 percent, the weakest in 14 months.
True, China’s economic indicators are dropping, but look at the numbers. Both industrial production and retail sales grew at hefty paces. The problem here is China’s torrid growth rate over the last few years has set an unrealistic standard. As well, China’s unrealistic growth rate has produced high inflation, which is a far greater problem for the world economies. China is slowing and it is about time, as the plan all along has been to curb inflation.
China’s inflation has fallen steadily from a three-year peak of 6.5 percent in July 2011 in response to a series of policy tightening steps and weakening economic activity.
The current data is good news. It means the Chinese plan is working, which means the world economies will benefit greatly from China’s “great economic decline.” China slowing will give growth impetus to the rest of the world.
China’s implied oil demand was uncharacteristically flat and may even have turned negative in April.
One reason the price of oil has dropped is the fact that China is slowing, and if there is one catalyst that will inspire consumption in a low inflation world, it is cheap energy – cheap gasoline. Simply, every economy in the world depends on consumers to make it run and grow. If inflation is low, and food and gas prices are cheap, the consumer spends more money on other things. This reality is the single most important fuel for world economic growth. Frankly, I just don’t get it. In my eyes, the economic data coming in from China and the US is solid and the lack of media attention on the positive is astounding.
Imports from China, the United States’ largest foreign supplier, rose 12 percent in March to $31.5 billion. Meanwhile, U.S. exports had another good month, rising 2.9 percent to a record $186.8 billion. Exports of goods and two subcategories – industrial supplies and capital goods – also hit record highs in good news for the U.S. manufacturing sector.
Furthermore, it is not just the US and China that are on the right track economically. Three other top 10 economies on the planet are also showing strong signs of improvement.
Imports from the EU and Mexico also set records, while imports from Canada were the highest since September 2008 and from Japan the highest since October 2007. Record highs were set in both goods and services, with imports of automotive products and capital goods also setting record highs.
Japan, the EU, and Canada are huge economies producing huge amounts of product for consumption and Americans are consuming them. Americans are spending, which implies that if gasoline prices drop further, the consumer will spend even more. How is that or any of the above data bad? It isn’t and I don’t expect the market to see it my way, as the market is irrational. You, however, are not, so consider the following as you put your money-making strategies together.
Waiting for a full recovery or economic Armageddon serves no one. The trick to making money is keeping score while a situation unfolds. It’s the difference between “true belief” and “good investing.”
Trade in the day; Invest in your life …
