Thursday, 16 May 2013

Euro area remains in recession, Japanese recovery accelerates

Economic data on Wednesday were mostly negative.

The eurozone economy contracted 0.2 percent in the first quarter. This followed a 0.6 percent contraction in the previous quarter and was its sixth quarter of contraction.

The German economy managed to expand 0.1 percent in the first quarter but the French economy contracted 0.2 percent and the Italian economy shrank 0.5 percent.

The weak eurozone economy may be a drag on the US economy. A report on Wednesday showed that US industrial production fell 0.5 percent in April, reversing the 0.3 percent increase in March.

Further indication of weakness in US manufacturing on Wednesday came from the Federal Reserve Bank of New York, whose index of conditions for manufacturers in the region fell to -1.4 in May from 3.1 in April.

In another indication of possible weakness for the economy, another report on Wednesday showed that producer prices in the US fell 0.7 percent in April, the biggest decrease since February 2010.

At least the US housing market remains in recovery. A report on Wednesday showed that the National Association of Home Builders/Wells Fargo housing market index rose to 44 in May from 41 in April.

The weak economic data did not stop the S&P 500 from making another record high on Wednesday, although Japan's Nikkei 225 stole some of the thunder in financial markets by rising 2.3 percent to close above 15,000 for the first time since 2007.

The strong performance of Japanese stocks recently seem to have been justified by a report on Thursday showing that the economy grew 0.9 percent in the first quarter, the fastest pace in a year.

Private consumption grew 0.9 percent. Net exports contributed 0.4 percentage point to growth after having subtracted from growth in the previous three quarters.

However, capital spending fell 0.7 percent, its fifth consecutive quarterly decline.

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