The eurozone recession shows no signs of reversing, as the European Union’s private sector shrank for the 15th consecutive month in April.
The EU Purchasing Managers’ Index (PMI) from economic research firm Markit rose slightly to 46.9 in April from 46.5 in March, but was still below the threshold of 50, which signifies growth. Germany, one of the strongest European economies, posted a PMI of 49.2, continuing a shrinking trend provoked by the Chinese economic slowdown earlier this year.
“The PMI suggests that, having eased in the first quarter of the year, the eurozone’s economic downturn is likely to have gathered momentum again in the second quarter,” Chris Williamson, chief economist for Markit, noted. “Strong downturns in France, Spain, and Italy have broadened out to encompass Germany again, with slumping domestic demand exacerbated by export losses due to a weakening of economic growth in other countries, such as the U.S. and China.”
Continuing contraction suggest the EU will be unable to escape the recession until the second half of 2013. According to a new report from the European Commission, annual GDP is forecast to shrink by 0.1 percent in the EU and by 0.4 percent in the eurozone this year.
The eurozone downturn began two years ago, when mounting debt in Mediterranean countries like Greece and Spain led to the need for bailouts from other economies in the 17-member eurozone, resulting in severe limits to credit and precipitating a broader fiscal crisis.
U.S. Trade Gap Narrows
The U.S. trade deficit narrowed to $38.8 billion in March, a decrease of 11 percent from the revised $43.6 billion deficit in February, largely due to a steep decline in crude oil imports, which plunged to their lowest level in 17 years, according to the U.S. Department of Commerce. March exports fell 0.9 percent to $184.3 billion, while total imports dropped 2.8 percent to $223.1 billion.
Crude oil imports, which are included in the industrial supplies category, fell by $1.9 billion down to a total of $21.7 billion in March. So far this year, oil imports have fallen by nearly $16 billion.
“The [imports] percentage drop was the biggest since February 2009. The decline in imports of goods was almost broad based, adding to signs of sluggish domestic demand already flagged by weak retail sales and manufacturing data,” Reuters reports. “Exports have been one of the bright spots in the economy, but are being crimped by a slowing global economy, which is hurting manufacturing.”
The goods deficit for the month fell to $56.1 billion, a $4.6 billion decrease from February, while the services surplus inched up $0.2 billion to $17.3 billion. Goods exports dropped by $1.8 billion to $130.3 billion, led by declines in foods, feeds, and beverages; automotive vehicles and parts; and industrial supplies and materials. Goods imports decreased by $6.4 billion to $186.5 billion, led by
The politically sensitive deficit with China narrowed 23.6 percent in March to $17.9 billion, but still remained the highest trade gap between the U.S. and any single nation. The deficit with the European Union grew 13 percent in March to $9.9 billion, although U.S. exports to the region increased 14.4 percent.
Demand for Factory Goods Plunges
New orders for U.S. manufactured goods fell 4 percent in March, following a 1.9 percent February increase, primarily due to a steep decline in demand for transportation goods, according to the U.S. Department of Commerce. The value of new orders fell $19.5 billion to a total of $467.3 billion for the month. Excluding the transportation category, orders fell by 2 percent.
New orders in the often volatile transportation equipment category, down two of the last three months, plunged 15.1 percent in March down to $62.5 billion, while orders for primary metals fell 3.2 percent to $28 billion, demand for electrical equipment declined 2.9 percent to $9.8 billion, and machinery orders fell 0.8 percent to $33.6 billion.
On a more positive note, orders for core capital goods excluding aircraft and defense equipment, which serve as a key indicator for future business spending, rose 0.9 percent in March after falling 4.8 percent in February.
“Companies are feeling the effects of slowing growth in Europe, Asia and the U.S., where higher taxes and across-the-board federal budget cuts, known as sequestration, have restrained consumer spending,” Bloomberg News reports. “Orders could pick up as manufacturers prepare for improved demand expected in the second half of the year as employment strengthens.”
Unemployment Rate Drops to Four-Year Low
The U.S. labor market added 165,000 non-farm jobs in April, driving down the national unemployment rate to 7.5 percent, the lowest level since December 2008, according to the U.S. Department of Labor. Moreover, job creation for prior months was revised upward, with the economy creating 114,000 additional jobs in March and February than initially estimated.
“In particular, there was little evidence in the report that the ‘sequester’ of automatic federal spending cuts is having a major impact on the job market so far,” the Washington Post notes. “Federal government employment excluding the postal service fell by 4,900 jobs, while the sectors that include many government contractors remained on their job creation trends of the last several months.”
The largest employment gains last month were in professional and business services, which added 73,000 jobs, followed by the leisure and hospitality industry, which added 38,000 jobs. Employment remained relatively unchanged in the construction and manufacturing industries last month.
“The job growth is occurring while the U.S. economy is growing modestly but steadily. It expanded at a 2.5 percent annual rate in the January-March quarter, fueled by the strongest consumer spending in two years,” the Associated Press explains. “A strong recovery in housing is helping drive more hiring. Rising home sales and construction creates more jobs and spurs more spending on furniture, landscaping, and other services.”
Consumer Confidence Rebounds
The Conference Board’s Consumer Confidence Index increased 6.2 percentage points to 68.1 in April, offsetting earlier declines in March and marking a solid improvement in public perception of U.S. economic conditions.
The latest findings reflected widespread optimism. The proportion of survey respondents who said business conditions are good rose to 17.2 percent in April from 16.4 percent in March, while those saying conditions are bad fell to 28.1 percent from 29.1 percent. The short-term outlook was also stronger, with 16.9 percent of consumers expecting conditions to improve over the next six months, up from 15 percent in the prior reporting period.
“Consumer Confidence improved in April, as consumers’ expectations about the short-term economic outlook and their income prospects improved. However, consumers’ confidence has been challenged several times over the past few months by such events as the fiscal cliff, the payroll tax hike and the sequester,” Lynn Franco, director of economic indicators at the Conference Board, said. “Thus, while expectations appear to have bounced back, it is too soon to tell if confidence is actually on the mend.”
The outlook for the labor market also saw an uptick last month, with 14.2 percent of consumers expecting more jobs in the months ahead, up from 13 percent in March. Moreover, the percentage of consumers expecting their income to rise climbed to 16.8 percent from 14.6 percent.
