PHILLY FED SURVEY: ANOTHER WEAK REGIONAL PMI
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 1.3 in April to -5.2 this month. The current activity index has shown no pattern of sustained growth over the past seven months, generally alternating between positive and negative readings. The number of firms reporting decreased activity this month (29 percent) edged out those reporting increased activity (24 percent).
The demand for manufactured goods remained weak, with the current new orders index declining from -1.0 to -7.9. The shipments index also indicated weakness, decreasing more sharply from 9.1 to -8.5. Firms reported a notable increase in inventories this month: The current inventories index increased from -22.2 to 4.1.
Labor market conditions showed continued weakness, with indexes suggesting lower employment overall. The employment index decreased 2 points to -8.7, its second consecutive negative reading. The percentage
of firms reporting employment decreases (22 percent) exceeded the percentage reporting increases (14 percent). The workweek index declined 10 points to -12.4, remaining negative for the fifth consecutive
The number of U.S. workers seeking new unemployment benefits jumped last week after trending down much of the spring, showing the uneven nature of the job market’s recovery.
It was the largest one-week gain in new benefit requests since November 2012. The prior week’s level was revised up by 5,000.
The four-week moving average of claims, which smooths week-to-week volatility, increased by 1,250 to 339,250. The prior week’s average, which was revised up slightly, was the lowest level since January 2008, just after the most recent recession started.
Positive trend continues from start of year
Of the more than 1,600 business people polled, 27 per cent expected conditions to improve, against 21 per cent who expected the outlook to worsen. The rest thought conditions would stay the same.
The figures continue the positive trend that began earlier this year, when executives were more upbeat on the global outlook than gloomy for the first time since mid-2011. In February, 29 per cent thought conditions would improve and 22 per cent thought they would deteriorate.
Strangely, I don’t read the story with quite the same “upbeat” suggested by the title. Given that current world conditions are nowhere near good, the fact that only 27% expect them to improve is nothing to write home about. It also seems to me that the ratios have deteriorated some since February. World shippers were likely not among the upbeat folks in this survey. Read on:
“Global demand for seaborne containers is expected to increase by 2% to 4% in 2013, lower on the Asia-Europe trades but supported by higher growth for imports to emerging economies,” the company said.
Indications for the first quarter of 2013 “show modest improvements in the global demand for container transport, reflecting the weak economic situation, especially in developed countries.”
“Demand is expected to stay subdued in 2013 while capacity will grow significantly. Accordingly, conditions for the container industry remain challenging and managing supply will be even more important this year,” it said.
Companies more confident about investing in equipment
Japanese core machinery orders jumped a bigger-than-expected 14.2 per cent in March, the quickest monthly pace in eight years, in a sign a weaker yen and surging stock prices are making companies more confident about investing in equipment.
Manufacturers surveyed by the government expect core orders to fall 1.5 per cent in April-June from the previous quarter after flat growth in the first three months of this year, the Cabinet Office data showed.
Estimates suggest worst quarterly figures since 2009
Imports dropped 15 percent in March from the same month a year ago while exports rose 2 percent.
Registrations in April increased 1.8 percent to 1.08 million vehicles from 1.06 million cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. Four-month sales fell 7 percent to 4.18 million vehicles. (…)
Car sales in the region fell 8.7 percent in January and 10 percent in February and March.
Regional car sales last month were helped by the most of the Easter holiday shifting to March this year from April in 2012. The decline may resume for the rest of this year, though at a slower rate than in the earlier months, according to estimates by IHS Automotive Research.
Auto sales in Germany, Europe’s biggest economy, rose 3.8 percent in April, ending five months of drops. Registrations surged 15 percent last month in the U.K., the only car market of Europe’s top five to grow in 2012, and 11 percent in Spain. French auto sales fell 5.3 percent and demand in Italy dropped 11 percent. (…)
S&P affirms negative outlook on India; warns of downgrade risk
Finally, this China update from CEBM Research:
The conclusion from our mid-month steel trader survey is that actual sales remained weak and the traditional peak season was almost non-existent this year. Furthermore, nearly all respondents do not expect a strong rebound in the steel market next month. (…)
The cement market has continued to recover over the past two months.
Most construction machinery dealers surveyed mentioned that sales in the first half of May were lower than their expectations. It is likely that construction machinery sales in May will achieve only modest Y/Y growth. In general, the peak season for construction machinery sales has passed, and the market in May has become tepid.
Bank credit has been tightened. Respondents from Shanghai mentioned that since a contract scandal involving false inventories was revealed recently, banks have tightened mortgages and some have even raised lending rates by 30% to 40%.
In summary (chart from ISI)
The labour department’s consumer price index edged 0.4 per cent lower, the largest decrease since December 2008 when the US was suffering some of the darkest days of its financial crisis. The decline was greater than the 0.2 per cent dip in March and economists’ expectations of a 0.3 per cent decline.
Much of April’s drop was driven by an 8.1 per cent slide in petrol prices, the most since December 2008, following a less severe 4.4 per cent fall in March. The average price for a gallon of unleaded petrol fell by about 13 cents in April, ending the month at $3.51, according to AAA.
This drove overall energy prices down 4.3 per cent in April, following a 2.6 per cent drop in the previous month. Food prices rose 0.2 per cent.
This weakness extended to the measure for core prices, which excludes the volatile food and energy segments. Core prices increased 0.1 per cent, less than projected.
One set of inflation measures, which Fed watches very closely, is down a lot more than another set of inflation measures, which the public watches closely.
The disparity between core PCE (1.13%) and core CPI (1.70%) is especially striking. (…)
There’s reason to be cautious about the PCE number. Though Fed officials favor it — because they believe it does a better job reflecting changes in the economy — there have been some quirks in it lately.
One of them is a measure known as “financial services furnished without payment.” This is the government’s way of tracking what households pay for bundled bank services like access to ATM machines or check-writing. “This would be any service provided by a bank for which there is no explicit payment,” says Brent Moulton, the associate director of the Bureau of Economic Analysis. Without a market price to go on, the Commerce Department imputes a cost to consumers for these services based on complex formulas that move as interest rates shift.
It turns out that right now interest rates are shifting in a way that drives down the imputed value of this service. In the first quarter the price of this service fell 2.2% from a year earlier and since the second quarter of 2011 it has fallen on average by 1% annually, according to the Bureau of Economic Analysis. These measures are down largely because interest rates are falling, Mr. Moulton said, not necessarily because the actual cost of the service is going down. Strip out the quirky number and the decline in core consumer prices was 0.2 percentage points less severe in the first quarter than the official figure, according to Bureau of Economic Analysis data. A measure which strips out all imputed prices in the core consumer price index was up 1.31% in March, again more than the 1.13% number.
Underlying inflation, in other words, perhaps wasn’t slowing quite as much as the Fed’s favored measure suggested.
Because the Labor Department’s consumer price index doesn’t perform these kinds of imputations, its consumer price measures warrant close monitoring right now. The CPI index has its own quirks — including the heavy weight it places on home rental costs. Still, it might be telling a meaningful story about the true underlying inflation trend. Up 1.7% from a year earlier, the core consumer price index change suggests that inflation has indeed slowed, but not to the alarmingly low levels that the PCE numbers imply.
That — along with stable inflation expectations — helps explain why Fed officials themselves haven’t yet expressed too much concern about inflation getting too low or deflation threats growing.
- There’s more: US INFLATION IS ACTUALLY STUCK AT 2.0%
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.8% annualized rate) in April. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.0% annualized rate) during the month. The BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.4% (-4.3% annualized rate) in April. The CPI less food and energy increased 0.1% (0.6% annualized rate) on a seasonally adjusted basis.
Over the last 12 months, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.6%, the CPI rose 1.1%, and the CPI less food and energy rose 1.7%
However you slice it, U.S. inflation is 2.0% so far in 2013. Core CPI, median CPI and the 16% trimmed-mean CPI have all rise at a 2.0% annualized rate since December 2012. The 0.5% jump in core CPI in Jan-Feb has not been followed by a decline. Rather, core prices have kept rising by 0.1% per month. The median CPI has gained 0.2% monthly in all of the last 6 months but one. All this to say that, in spite of strong desinflationary trends across the world, U.S. core inflation is showing no signs of slowing below 2.0%.
Housing starts fell 16.5% in April to a seasonally adjusted annual rate of 853,000 units, the lowest level since last November but still up 36% from the level of a year earlier.
Multifamily homes with at least five units plunged 37.8%. Single-family home construction dropped by 2.1% to an annual rate of 610,000 units in April, the second straight monthly drop and the lowest level reported this year. Housing starts can be volatile, due in part to weather, and can be subject to large revisions.
Building permits, which are less volatile and serve as a leading indicator of future construction, rose to the highest level since June 2008. They increased 14.3% to an annualized rate of 1.02 million in April. (…)
The pullback in housing construction comes amid reports from home builders that they are deliberately slowing their rate of expansion in order to boost prices at a time when inventories of homes for sale are already extremely low. Rising land costs in some markets, higher costs of building materials, and difficulty in finding skilled workers have also cut into their margins.
Nearly 60% of builders in April said that they had slowed their sales pace in at least one new-home community by limiting the release of new homes or boosting prices, according to a survey released earlier this week by research firm Zelman & Associates. That dynamic isn’t limited to solely California and other Western markets that have witnessed the strongest price growth, according to the Zelman report. Builders in less-heated markets from Texas to the Carolinas to Detroit have also been managing sales.
A so-so first-quarter earnings season hasn’t dented investors’ enthusiasm for stocks.
Of the 458 companies in the Standard & Poor’s 500-stock index that have reported results, 70% have beaten forecasts for earnings, in line with the average for the past four years. If results continue as projected, first-quarter earnings will rise 3.4% from the previous year, according to FactSet.
Meanwhile, sales have come in below forecasts, declining 0.2%, while analysts had expected 0.5% growth. Among companies that have reported, 48% beat Wall Street’s projections for sales, below the average of 52% from the past four years, according to FactSet.
China Wages Rose Sharply in 2012 Wages in China continued to climb at a double-digit pace last year despite a slowing economy, with inflation-adjusted wage growth actually accelerating from 2011.
Average wages for employees at non-private enterprises were up 11.9% from the year before in nominal terms, to 46,769 yuan ($7,543), the National Bureau of Statistics said in a statement Friday, compared with a 14.4% pace in 2011.
Non-private enterprises include state-owned companies, listed companies and joint ventures.
Average wages for employees at private companies were up 17.1% to 28,752 yuan, compared with an 18.3% pace in 2011.
With inflation taken into account, wages of employees at nonprivate companies were up 9% in 2012 from a year earlier, exceeding 2011′s 8.5% pace. Real wages in the private sector were up 14%, accelerating from 12.3% in 2011.
Bergsten Warns of Currency Wars in Peterson Valedictory Speech In his valedictory speech as the head of one of the most respected economic think tanks in the world, Fred Bergsten issued a clarion call about “a clear and present danger” that continuing “currency wars” represent to the U.S. economy, global trade and the international monetary system.
“Virtually every major country is seeking depreciation, or at least non-appreciation, of its currency to strengthen its economy and create jobs,” he said in prepared remarks to the Peterson Institute of International Affairs Thursday afternoon.
Those currency tensions, and the policies that are fueling them, are costing the U.S. economy millions of jobs and threatening to create the kind of global problems that contributed to the Great Depression, he said.