- Labour, housing, confidence all surprising positively in the US;
- Sharp monetary slowdown finally shows up in the Eurozone;
- Bad PMIs for China, but is this shocking? Broader NE Asia dataflow suggests ambivalence;
- Japan's capex crumbles and unemployment soars, but production, retail sales and wages surprise positively.
A series of positive
surprises in the US from labour and housing markets, and also from
consumer confidence, suggests we can expect some upwards revision of
economists' growth forecasts for 4Q11 and 1Q 12 (currently consensus
stands at 2.3% and 1.9% respectively). The biggest headline was the
completely unexpected fall in the unemployment ratio in November from
9% to 8.6%. This major surprise was due entirely to the fact that
the rate of firing has fallen sharply (from 5.2% to 4.9%), whilst the
ratios for job leavers, for re-entrants and for new hires were all
unchanged. We'd had a hint that numbers might be stronger than
expected earlier in the week, when the ADP survey sprang a similar
surprise, reporting a rise of 206,000 during November, very nearly
double the rise in October, and the strongest reading since December
2010.
The news from housing
markets remains choppy, but we have reached the stage where the
weight of surprisingly good news is beginning to outweigh the
shocking bad stuff. This week, for example, discovered a 10.4% MoM
jump in pending home sales (ie, sales where the contract has been
signed but not completed). This was the strongest reading since
November 2010, and completely unexpected: sales in the Midwest popped
24.1% MoM, and the Northeast (the most depressed market) jumped
17.7%. But whilst volumes may be in remission, it's still not clear
what's happening to pricing: the US House Price index showed a rise
of 0.9% (which no economist had expected), but the S&P Case
Shiller 20 Cities price index showed a fall of 3.6% YoY (which was
even worse than economists had forecast).
Finally in the US,
consumer confidence also appears to be rebounding: with the index for
November rising to 56, from 40.9 in the previous month. This was the
most cheerful assessment for five months, reflecting sharp
improvements in the view of both the current and likely future
economic situation.
The picture I've
painted here is quite brightly positive. But of course, the week's
news washed up a shore-drift of consensus-confirming and minor negative data shocks. Remember, I'm concentrating here only on the data which
really stood out.
And for that reason,
when we shift to the Eurozone, there's a swathe of data which tells a
story of an economy under siege: labour market indicators, business
climate and confidence surveys , PMIs for the Eurozone, for Germany
and France individually, consumer spending indicators for France,
industrial sales for the UK: they all consistently paint a picture of
the European economy slowing fast. But very few of them stand out as
being exceptionally better or worse than we had expected. But two
readings did stand out this week.
First, Germany's retail
sales, excluding autos, were far stronger than expected, rising 0.7%
MoM, with exceptionally strong spending on clothes/shoes (up 7.8%
MoM), and autos (up 3.8%). Should we really be surprised that the
German consumer remains in good health? After all, though financial
catastrophe may stalk southern Europe and threatened the financial
architecture of the continent, Germany's unemployment ratio in
November fell to 6.9% from a previous 7%.
Second, though, and
probably far more important, the European Central Bank reported –
for the first time during the ongoing crisis – really sharp
slowdowns in monetary aggregates during October. M2 slowed from 2.5%
YoY in September to 2% YoY in October, implying a sequential slowdown 1.75 SDs
below seasonalized historic trends; M3 growth slowed from 3% YoY to
2.6% YoY, implying a slowdown of 1.8 SDs below seasonalized historic
trends. The problem here is that we also know that Eurozone monetary
velocity is absolutely flat. By implication, nominal GDP growth in
the Eurozone must have very nearly stopped by now. There is a message
for the ECB here: 'Sie mussen Zinssenkung'. (It's the only language
they understand.)
China's contribution to
the global central-bank effort to forestall the collapse of Eurozone
banks was for the People's Bank of China to cut its reserve
requirement ratio on China's banks by 50bps to 21% (for large banks).
This was announced two hours before the rest of the world's major
central banks cut 50bps from dollar-funding costs. The slight
asynchronicity was enough to feed speculation that PBOC was reacting
to the deterioration in China's own economic data. The focus was on
China's Manufacturing PMI for November, which fell to 49 from 50.4
(which was worse than the range of expectations) and the HSBC/Markit
Manufacturing PMI, which fell to 47.7 from 51. This was joined on
Saturday by a sharp fall in China's Non-manufacturing PMI to 49.7
from 57.7. In short, the surveys tells us that China is now slowing,
and more sharply in November than in October.
But is this actually a
shock? I ask because the week brought a mass of hard data (ie,
non-survey data) from the rest of NE Asia, almost all of which came
in as expected: South Korean exports and industrial production and
service industry output, Taiwan leading and coincident indexes (and
Taiwan's Manufacturing PMI for that matter). In addition, Hong
Kong's retail sales surprised on the upside in both value and volume
measures (up 23.1% YOY and 15% YoY respectively), as did South
Korea's trade surplus (thanks to strong exports, primarily to the
US).
Adding Japan to the mix
extends the feeling that the data on NE Asian growth is no worse than
ambivalent. This last week brought upside surprises on retail sales
(up 1.9% YoY), on industrial production (up 2.4% MoM, mainly thanks
to rising output of transport equipment, and machinery); and even
cash earnings (up 0.1% YoY). On the other hand, we also had two
negative shocks. First, capital spending fell 9.8% YoY in 3Q: this is
best seen as further delayed and intensified J-curve effect from a
sharper revaluation of the yen even than followed the Plaza Accord in
the late 1980s. Most likely Japan's capex loss is likely to be
China's FDI gain. Second, the unemployment ratio jumped unexpectedly
from 4.1% to 4.5% (even as wages surprised on the upside). This is a
mirror image of what we saw this week in the US, when unemployment
fell, but so did wages.
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