Hard Evidence Contradicts Emerging Market “Crisis” [iShares MSCI Emerging Markets Indx (ETF), Vanguard FTSE Emerging Markets ETF]

emerging marketsMike Burnick: The global economy exited 2013 in solid shape with growth momentum improving in the U.S. and internationally. Economic data turned more upbeat during the fourth quarter of last year. In fact, the Federal Reserve cited the improving economy as a reason why they should begin to taper its bond-buying program.

But so far in 2014, the economic data has taken a decided turn for the worse — especially in the U.S. and Europe — with renewed weakness in Japan likely to follow soon.

American consumers may not be tapped out, but perhaps they’re hibernating from the Polar Vortex, as U.S. retail spending nose-dived last month. January retail sales declined 0.4 percent — the biggest drop in 10 months — and November’s results were also revised down.

Most emerging markets have a fast-growing middle class of consumers to help take up the slack in today's slow growth world.
Most emerging markets have a fast-growing middle class of consumers to help take up the slack in today’s slow growth world.

Factory output has also cooled off substantially, as U.S. industrial production declined 0.3 percent in January, when economists had expected a 0.3 percent rise. Manufacturing output dropped 0.8 percent compared with a forecast increase.

This downbeat data tells me the final U.S. gross domestic product (GDP) report for the fourth quarter may not live up to expectations. The initial estimate was a robust 3.2 percent growth rate for the three months ended December, but this figure may be revised lower.

In the graph below you can see how the Citigroup U.S. Economic Surprise Index (top panel) has been carving out a clear downtrend since the beginning of January and is threatening to go sub-zero, which is the dividing line that signals more negative than positive surprises in the economic data.

A similar index for the European Union (EU, middle panel) shows the same deterioration recently from a lower high, since Europe’s economy has barely been expanding in the first place.

Click for larger version

The EU economy grew at the anemic rate of just 0.3 percent in the fourth quarter of 2013, which makes its supposed “recovery” pale in comparison to the U.S. Dig deeper into Europe’s sordid economic data, and the picture looks even worse …

* France, with a debt-to-GDP ratio likely to exceed 95 percent this year, is looking more like its troubled PIIGS neighbors every day.

Recently, the French national auditor warned the country would again miss its budget deficit target, which has been the case for the past two years.

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