Monday’s update on U.S. retail sales provided yet another unwelcome sign of a slowing global economy. Retail sales, excluding cars, was reported at –0.4 per cent for June, well below the flat reading expected.
Nouriel “Dr. Doom” Roubini immediately chimed in on Twitter with a dire warning for the whole economy: “Q3 [GDP] growth could be well below 1 per cent given June sales report and unintended inventory buildup.”
Mr. Roubini zeroed in on business inventory, another data point announced Monday. The 0.3 per cent increase in inventories (0.2 per cent was expected) suggests more slowing in the coming months, as companies attempt to sell existing stock before producing more.
Earlier in the month, a more optimistic cadre of economists had cheered U.S. consumer credit data showing much stronger credit growth than expected, interpreting this as a sign that U.S. consumers were returning to the mall. In light of today’s report, the jump in credit card debt could be viewed as a sign of consumer financial stress, rather than optimism.
If U.S. consumers are staying home, that’s a particularly bad omen for Canadian growth as they are still the buyers of 75 per cent of our exports.
Another metric highlights not only that the economic trend has turned lower, but that the deterioration may be picking up speed. The Citi Economic Surprise Index for Major Economies measures reported economic data points against consensus expectations. If, for example, Industrial Production for Germany was reported exactly in line with analyst projections, this would have a “zero” effect on the index, whereas a positive surprise would push this benchmark higher. Since February of 2012, the Citi Surprise Index has retreated from +40, a measure indicating that most of the developed world data did better than expectations, to a far more distressing -47. Analysts may be cutting expectations, but that swing suggests they aren’t digging fast enough.
Don’t forget, the S&P/TSX composite is dominated by energy and mining sectors that are highly sensitive to changes in global economic growth. It will be difficult for the domestic market to make any substantial move higher until this string of weak data comes to an end.