Enjoyed some, hopefully well deserved, time off this week. In fact, I am writing this sipping cappuccino on St. Mark's Square in Venice. Incidentally, that cappuccino cost me the equivalent of $13, a sudden reminder how little purchasing power our US dollar has left. Anyway, I won't be able to post any ECO COMMENTs this week; back in the saddle next Monday.

• Travel Update:  I have been in Chicago the past few days for a PineBridge Investments institutional client road show and, while in the windy city, meeting with a few clients f our retail funds business. Chicago is a great city, but taking a cab from the airport on Tuesday morning was a painful reminder how much many US cities have fallen behind developing local infrastructure. I know, Chicago's geography makes the challenge especially difficult, but if it takes more than an hour for the 18 miles from the airport to downtown one cannot be particularly bullish on Chicago as a place to do business.
• US data flow is turning more bullish.  This was always going to be a fairly quite week in terms of US economic data, but what has been reported so far has been more bullish than expected and supports my view that the macro trend is picking up again after the statistical illusion of a slowdown in March and April. First, the NFIB Small Business Optimism Index improved more than expected in April, matching the previous post-recession high from last year February. Still not the break-out that many have been looking for but realization that we are back at the same level of optimism we saw prior to last year’s Japan earthquake and the subsequent events that severely dampened business sentiment. 
• US bank lending is slowly improving.  Second, the March US Consumer Credit report showed the biggest jump since November 2001(!). It’s increasingly obvious, US household deleveraging is over, which is a key reason consumer spending is rebounding much faster than consumer incomes. However, the underlying details tell us more about the past than the future. The biggest increase stemmed from non-revolving credit, typically auto finance, which corresponds with a strong 36% (annualized) increase in auto sales in Q1. More important for the broader spending backdrop is revolving credit (credit cards), which increased again for the first time in 3 months. That's the type of credit the really tells us whether credit conditions are easing for US consumers. Revolving credit increased in March for the first time in 3 months and growth in Q1 slowed from a stronger fourth quarter, yet Q1 was also the 2nd consecutive quarter of credit expansion after 3 years of contraction. Not a sign the recovery is speeding up, but a sin that the foundations of the recovery are getting stronger.
• US jobs data shows waning weather distortion. Third, Jobless Claims clearly support the argument that it was seasonal adjustment problems that drive the deterioration in much of the US macro data in the past month of two. Jobless Claims had been in a downward trend through February hitting a nearly 4-year low of 361,000 mid-month. In April claims jumped back to a 383,000 average raising fears that labor market conditions were deteriorating again. In the past 2 weeks, claims have fallen back to 367,000, the same average that persisted in February and March. I think housing and other labor market data will follow a similar trend and improve back toward levels we saw at the start of the year.
• Signs of stabilization in the Eurozone.  Over in Europe, all the focus is of course on the election fall-out; especially the situation in Greece, which already looks like it's heading for an election re-run. Meanwhile, the economic numbers in Germany are perking up again. Both Factory Orders and Industrial Production rebounded strongly in March’; possibly also showing evidence of seasonal adjustment problems in recent months. German data is now more clearly pointing to a stabilization in Q1. The past few day have brought more Industrial Production reports across Europe. Germany is the only major economy still showing year-over-year output growth. Production in France and the UK is down from a year ago but the pace of decline is moderating; meanwhile, the contracting in industrial activity is still intensifying in Italy, Spain and Sweden.
• More evidence of Asian export rebound.  Finally, recent Asian trade data confirmed the rebound in exports after sharp declines in Q1. China’s trade surplus increased again last month, mainly on weaker imports, but exports, which fell -48% (annualized rate) in Q1 are showing a strong rebound in the current quarter. Same story in Taiwan, where exports contracted -23% in Q1, however, here the trade surplus shrank sharply in April. Finally, Malaysia reported March trade figures, which showing the same quarterly export contraction in Q1 (-15%), but the monthly increase in exports in March already point to the same recovery pattern we are seeing in China and Taiwan.
• Bottom Line: Stronger data in US and more tentative evidence that the recent weakness was statistical rather than fundamental, which is consistent with my forecast of stronger growth rates over the summer. More evidence of stabilization in the Eurozone’s growth momentum in Q1 and signs of rebounding Asian exports, which bodes well for stronger Q2 growth trends in the region.

1. US Surprise Index turning around.  My own weekly US data surprise index increased to an 8-week high 37.5% last week showing a turn around after deteriorating sharply since mid-March; the global index continues to show no real trend, though at 22.2% my weekly global data surprise index slipped to a 6-week low.
2. Highlight last week was a set of elections in France and Greece, which delivered a clear signal that voters tolerate austerity without growth prospects only so long and the lack of a growth strategy will eventually cost governments their jobs.
3. US labor market still in weather doldrums.  April payroll growth disappointed expectations again last month, but the Unemployment Rate fell another tenth as both unemployment and the labor force declined. In fact, the surprise improvement in Jobless Claims may be the first indication of normalizing seasonals.  
4. US business sentiment going in different directions.  The ISM Manufacturing Index surprised on the upside improving to a 10-month high, the service sector ISM index fell to a 4-month low. As always the truth lies somewhere in between and the US growth momentum is likely trending sideways.
5. US Personal Income and Spending showed little change in consumer fundamentals. Real spending rebounded strongly in Q1, but real Disposable Income growth remains well below 1%, a discrepancy that has persisted since last summer.   
6. US Auto Sales were little changed in April.  Total sales started the second quarter down -5%; quite a change after two quarters of >30% annualized growth rates; this suggests consumer spending won't be able to maintain the 2.9% clip from Q1.   
7. Global Central Bank Watch:  The RBA cut policy rates last week by 50 basis points to 3.75%; the rate move as widely expected, however, it was more decisive than economists were forecasting; the other 6 central banks on the schedule last week, including the ECB, the Czech National Bank and the Bank of Thailand all left policy rates unchanged.
8. Global GDP Growth Watch:  Only 2 economies reported Q1 GDP growth last week; Taiwan's annual growth momentum slowed to a crawl, yet the annualized quarterly growth rate hit a year-high 4%. Spain slipped back into recession with GDP contracting at an annualized rate of -1.2%, the same as in Q4.
9. Global PMI Indices show renewed slowdown in April. My global composite index lost ground again last month driven predominantly by Europe, which is slipping deeper into recession and is not stabilizing as I had expected. Asian indices also deteriorated again suggesting the positive signs from March aren't sustainable yet.
10. South Korea's CPI inflation slows more than expected.  Asian inflation trends remain mixed with Taiwan and South Korea in the low inflation camp, while Hong Kong and Singapore are experiencing much higher rates of price increases. South Korea's improving inflation trend may help convince a very reluctant Bank of Korea to cut rates.