NEW$ & VIEW$ (18 OCTOBER 2012)

China’s Growth Slows

China said its economy continued to slow in the third quarter, just weeks before a once-a-decade change in leadership.

Growth in China’s gross domestic product fell to 7.4% in the third quarter compared with a year earlier, down from 7.6% in the second quarter and the weakest since the beginning of 2009. The seventh consecutive deceleration reflected a combination of weak demand from abroad, flagging investment at home, and insufficient spending by China’s households to pick up the slack. (…)

Data for September showed some signs of stabilization. Industrial output growth rose to 9.2% year-over-year, from 8.9% in August. Exports also bounced back, up 9.9% year-over-year in September, after 2.7% in the previous month. And Chinese refineries processed a record high amount of crude oil, 7% more than a year earlier.

Retail sales were up 14.2% year-on-year in September, ticking up from 13.2% growth in August. (…) A manager of a supermarket chain in Wenzhou said that “supermarket shoppers now hold their purse strings even tighter” and figures the chain will miss its 2012 sales target by 20%.


Remember that the retail sales stats in China are not very useful as they exclude services and also tally some corporate and government expenditures. A more accurate stat is urban household consumption spending, based on a quarterly NBS survey, which rose 7.9% in 3Q in nominal terms, down from 11.6% in 2Q and from 15% a year ago.  Rural household spending slowed to 13.2 in 3Q from 15.4% in 2Q and from 22.9% a year earlier. Interestingly, real urban disposable income rose 9.8% during the first 9 months. Rural PDI rose 12.3% during the same period.

Fixed-asset investment, a flawed stat which includes both capital formation and asset sales, rose 22.2% in September, up from 19.1% in August. Private firm investment rose 24.8%, up from 21.5% in August, while SOE investment rose 17.5%, up from 14.5% in August.


Pointing up  China also reported a 2.2% QoQ seasonally adjusted growth rate in Q3/12, +9.1% annualized, up from Q2 which was also up from Q1. This quarterly acceleration in China’s economy is completely foreign to the reality of the first 9 months. No other details from that GDP black box was released.

China seems to have stabilized although electricity consumption and freight volume have yet to confirm that. Next week’s flash PMIs will help in that regard. (Charts above from CLSA)

Pointing up  Electricity consumption slows  China’s electricity consumption growth slowed in September, underlining the nation’s moderating economic growth.

imageThe National Energy Administration said on Wednesday that the country’s total electricity consumption grew just 2.9 percent month-on-month in September to 405.1 billion kilowatt-hours. That is 9.3 percentage points lower than last September, and 0.7 percentage points lower than in August.

In the year to September, the country’s electricity consumption grew 4.8 percent, slowing from 12 percent in the same period last year. Electricity consumption is widely seen by economists as one of the most reliable indictors of a country’s economic strength.

The industrial sector’s consumption grew just 0.9 percent year-on-year. Among heavy industries, the country’s main electricity consumers, consumption dropped by 0.1 percent.

The agricultural sector used 3.4 percent more electricity than last September, whereas the service sector’s consumption grew by 8.4 percent. Both of these sectors consumed less electricity than in August.

China Home Prices Rise in Fewer Cities as Market Stabilized

Prices climbed in 31 cities of the 70 the government tracks from the previous month, compared with 35 cities in August, according to data released by the statistics bureau today. Prices fell in 22 cities, the data showed.

Sad smile  China’s business climate index falls in Q3  China’s business climate index, a major gauge of the country’s macroeconomic outlook, continued to fall in the third quarter.

The quarterly index dropped to 122.8, 4.1 points lower than in the second quarter. This is a steeper decline compared with the 0.4 dip in the previous quarter, the National Bureau of Statistics said Thursday. (…)

This was the result of a survey conducted among 21,000 industrial enterprises.

Businessmen in IT, wholesale and retail industries felt most optimistic.

Those in manufacturing industries, entrepreneurs from steel, petroleum and chemical fibre sectors felt the worst about their economic operations, with indices under 100.

Open-mouthed smile  U.S Home Building Surges

Residential construction picked up momentum in September and now is running at its highest level in four years, a turn that could have a positive effect on the jobs market and the broader U.S. economy.

Housing Starts Soar To 4-Year High, But Is Upside Limited?Builders started work on new houses and apartments at a seasonally adjusted annual rate of 872,000 units last month, the Commerce Department said Wednesday, up 15% from August and 34.8% from September a year ago. The level of starts was the highest since July 2008. (…)

Starts on single-family homes, which made up 69% of housing starts last month, rose 11% in September to a rate of 603,000 units, a 43% improvement from a year earlier.

Pointing up  The National Association of Home Builders, a trade group, estimates that each home built generates three full-time jobs and $90,000 in new tax revenue. (…)

Building rose 20.1% in the West, 19.9% in the South and 6.7% in the Midwest. New construction fell 5.1% in the Northeast.

In September, the number of new building permits, an indication of future construction, rose 11.6% to an annualized level of 894,000, also the highest level since July 2008. (…)

Builders have started construction on about 1.5 million new homes a year since 1959, to keep up with household formation which has run at an average of 1.27 million new homes a year, according to Census data analyzed by Moody’s Analytics.

U.S. households, many of which doubled up during the economic downturn in order to save money, have been growing by just over one million a year since 2008. (…) (Chart from IBD)

Shoppers Raise Hopes for U.K. Economy

The volume of retail sales rose 0.6% on the month and 2.5% on the year in September. In August, sales fell a revised 0.1% on the month and were up 2.5% on the year.

High five September’s retail figures benefited from higher sales of school uniforms and new collections of warmer clothing, both temporary factors. An ONS spokeswoman said sales of school uniforms rose because of the later start to the school year, which saw families holding off on purchasing items that more traditionally are bought in August. Girl

September’s rise helped boost sales over the third quarter, which increased 1.0% from the second quarter, and marked the strongest rise since the three months to June 2010.

Storm cloud  Output of new vehicles fell 7% in September from August, as demand for cars and vans across Europe fell, figures from the Society of Motor Manufacturers and Traders showed.

Storm cloud  Germany cuts 2013 growth forecast
Minister blames eurozone crisis and global slowdown

The German government has cut its forecast for growth next year to 1 per cent due to the eurozone sovereign debt crisis and the global slowdown as it made the case for stimulating Europe’s largest economy with tax cuts.

In its traditional autumn forecast, the government revised down gross domestic product growth next year from an earlier spring forecast of 1.6 per cent, but slightly revised up this year’s forecast to 0.8 per cent from 0.7 per cent. The government forecasts match those made by the country’s top four economic institutes last week. (…)

Snail  Fears grow over EU banking union plan
‘Legacy assets’ at heart of debate

(…) “The eurozone can only get together and act when the market puts pressure on it,” lamented an EU diplomat from a country allied with Paris. “The things people are being asked to do are very difficult and they don’t want to do them.”

Concern has focused on the inability to agree a way forward on a deal reached in June in which Berlin agreed to allow the eurozone’s €500bn rescue fund to take on debts of failing banks once a new centralised bank supervisor for the single currency is established.

German, Dutch and Finnish finance ministers called the deal into question last month when they insisted that “legacy assets” – such as banks in trouble before the supervisor was established – would be excluded in the rescue scheme, a position that caused howls of protest in Ireland and Spain which both have spent billions bailing out banks. (…)

German reluctance has led diplomats involved in detailed talks to become doubtful that a deal is possible before year’s end. One noted Berlin was still sending mid-level officials to talks on the single supervisor; others suggested talks could run for a year or more. (…)

More on the “peaceful” EU: Germany shocks EU with fiscal overlord demand

There must be an EU “currency commissioner” with sweeping powers to strike down national budgets; a “large step towards fiscal union”; and yet another EU treaty.

Finance minister Wolfgang Schaeuble dropped his bombshell in talks with German journalists on a flight from Asia, and apparently had the blessing of Angela Merkel, the chancellor. “When I put forward such proposals, you can take it as a given that the chancellor agrees,” he said.

Officials in Brussels reacted with horror. “If that is the demand, they are not going to get it. Nobody in the Council wants a new treaty right now,” said one EU diplomat.

Here’s something to motivate people to act:

Lightning  Spain Banks Face More Pain as Worst-Case Scenario Turns Real  Spain’s banks face more loan losses as the pace of an economic slump risks turning a worst-case scenario dismissed in stress tests into reality.

Bad loans as a proportion of total lending jumped to a record 10.5 percent in August from a restated 10.1 percent in July as 9.3 billion euros ($12.2 billion) of loans were newly classified as being in default, according to data published by the Bank of Spain on its website today. The ratio has climbed for 17 straight months from 0.72 percent in December 2006, before Spain’s property boom turned to bust. (…)

Lending in Spain’s banking system fell 1.1 percent in August from July and 5 percent from the same month a year earlier, the Bank of Spain said. Deposits dropped 1.1 percent in the month and 8.7 percent from a year ago. (Chart below from Scott Barber)



It’s still early, but this earnings season is so far looking a lot like last earnings season.  Last earnings season, the percentage of stocks that beat earnings estimates was 59%.  So far this season, the earnings beat rate also stands at 59%.  Last earnings season, revenues were awful, and the revenue beat rate finished at 48%.  So far this season, revenues have also been awful with a beat rate of just 43%.

Bespoke readers will remember that while the earnings beat rate was weak for all US stocks last season, it was strong for just the stocks in the S&P 500.  The same thing is happening this season, as the beat rate for S&P 500 stocks so far stands at 75%. (Bespoke Investment)

Also remember that the beat rate last season declined throughout the season.


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