NEW$ & VIEW$ (4 DECEMBER 2012)


Worldwide manufacturing conditions showed signs of stabilising in November, according to purchasing managers from 10,000 companies across the globe. The JPMorgan Global Manufacturing PMI, a survey
based barometer of business conditions produced by Markit, rose from 48.8 in October to 49.7 in November, the highest reading for five months and only fractionally below the no-change level of 50.0. Manufacturers reported the first increase in production, albeit marginal, for five months, as inflows of new orders fell at a reduced rate. New business decreased
only slightly in November to signal the smallest deterioration in demand since June.


RBC Capital adds:

The ISM Manufacturing Index for November disappointed, dipping to 49.5 from the previous month’s 51.7 reading. This slide was largely due to a drop in the new orders and employment sub-indexes, but the demand balance (i.e., new orders less inventories) showed decent improvement, rising for the third consecutive month.

PMI breadth continues to climb with 62% of countries offering monthly gains. This same metric was at 56% last month, 52% in the prior month and 45% three months ago. “Less bad” is starting to sneak into the picture for many countries around the globe which might not be coincidental given the large and coordinated global monetary easing program put in place about 15 months ago.

image(Chart from WSJ)

ISI’s global economic diffusion index keeps rising with broad based improvements. In the U.S., where the ISM PMI was weak last month, the diffusion index of ISI’s company surveys has jumped significantly over the past 4 weeks. And now this:

Smile  Big Gains in November Auto Sales

Sales of cars and light trucks jumped 15% to 1.14 million in November compared with a year ago and the seasonally adjusted annualized sales rate was 15.5 million, the highest since January 2008, said market researcher Autodata Corp. (…)

Ford Motor Co. said on Monday it will boost its first quarter North American production by 11% over 2012 levels. Its November sales of cars and light trucks rose 6.4% over a year ago to 177,092 vehicles.

Largest U.S. auto maker by sales, General Motors Co.however, signaled plans to idle at least one factory as it tries to shrink bloated inventories of unsold vehicles. (…)

Ford estimated that purchases driven by replacement vehicles damaged by the East Coast storm and resulting flooding drove up monthly industry sales by between 20,000 and 30,000 vehicles. (Chart from Haver Analytics)

Open-mouthed smile  U.S. Construction Spending Is Substantially Firmer

The value of construction put-in-place jumped 1.4% during October after a 0.5% September gain. Private sector spending surged 1.6% (15.5% y/y) led by a 3.0% (20.8% y/y) jump in residential building. Single-family construction surged 3.6% (29.0% y/y). Multi-family building gained 6.3% (53.2% y/y) while spending on improvements increased a lesser 1.8% (8.9% y/y). A relatively weaker gain was scored by nonresidential building which rose 0.3% (10.7% y/y). Commercial construction jumped 1.2% (9.5% y/y) but office building ticked up just 0.1% (17.6% y/y).

In the public sector, building activity gained 0.8% m/m (-1.0% y/y). Spending on highways & streets, which is 29% of total public construction spending, fell 2.4% (-5.0% y/y) as state budgets were pinched. Transportation spending, which is 10% of total public, offset some of that decline with a 5.8% (22.0% (0.2% y/y) rise while office construction rose 4.4% (-16.1% y/y).


Pointing up  Total construction activity has been a big drag on the U.S. economy, shrinking 15.3% in 2009, 11.2% in 2010 and 3.1% in 2011.. However, it is surging in 2012 with a 9.6% Y/Y jump through October. In the last 3 months, construction spending rose at a 12.6% annual rate. Even public spending is recovering, rising 8.7% annualized in the past 3 months.

Two real cliffs:



Construction employment is about to recover.

It’s not all rosy, however:

RECESSION WATCH with Lance Roberts:

As a business sentiment indicator the PMI index gives us some insight into what manufacturers across the country think.  However, as an economic indicator by itself, it can be somewhat misleading due to weighting issues, etc.  Therefore, I include the ISM PMI in a composite of other manufacturing related indexes to achieve a broader view of the economic data and trends.  The chart below is the Economic Composite Index which not only uses the ISM PMI but also the Chicago Fed National Activity Index, the NFIB small business survey, several Fed manufacturing indexes and the Chicago PMI.


As of November there are still a couple of the components, the CFNAI and NFIB, which have not reported as of yet.  However, if we assume that they do not deteriorate any further, the composite index would currently stand at 26.82, down .92 points from last month.  Historically, a reading of this level on the composite index has indicated that the economy was in, or was about to be in, a recession.  The only caveat was in 2011 as the economy slowed due to the debt ceiling debate and manufacturing shutdown due to the Japanese earthquake.  However, that slowdown was offset by a convergence plunging energy prices, global artificial stimulus and the warmest winter in the last 65 years.  Those events that provided a short term boost to the economy at that time are unlikely to repeat currently.

Are we in a recession now?  The answer is “no” but evidence continues to mount.  (…)

Look at how components have deteriorated in recent months.




Sarcastic smile  GOP Counters on Budget

House Republicans made a deficit-reduction offer that calls for $800 billion in increased tax revenue, half of what Obama proposed. The offer was immediately rejected by the White House.

The offer’s outlines are similar to a budget deal that was emerging in private talks between Mr. Obama and Mr. Boehner in mid-2011, when Mr. Boehner agreed to $800 billion in new revenues but Mr. Obama sought more. Those talks collapsed with each side blaming the other for the breakdown. (…)

Still, officials said, congressional leaders and the president could meet by the end of this week. Their last meeting was nearly three weeks ago. Discussions between congressional and White House staff continued over the weekend, officials said. (…)

Dates (WSJ)

Dec. 18, 2012 Last date for any bill to be introduced to Congress, which is expected to adjourn for the year on Dec. 21

Jan. 1, 2013 New tax rates and rules under fiscal cliff kick in

Jan. 2, 2013 $110 billion in fiscal-cliff spending cuts due to begin

December 2012 or January 2013 Federal government due to hit $16.394 trillion debt ceiling

March 27, 2013 Funding of federal government expires



Non-manufacturing PMI hits 3-month high  The performance of China’s non-manufacturing sector hit a three-month peak in November, the National Bureau of Statistics has said.

The country’s Purchasing Managers’ Index, or PMI, for the non-manufacturing sector increased by 0.1 point to 55.6 for the month, the bureau said.

Real estate prices rise for sixth month

The China Index Academy, a property research body, reported on Monday the average price of new homes in 100 monitored cities increased 0.26 percent monthly in November to 8,791 yuan ($1,395) per square meter. A rise of 0.17 percent was recorded in October.

Sixty of the 100 cities saw a rise in property prices, up from 56 in October. But 38 cities experienced a fall, down from October’s 42.

In 10 major cities, including Beijing and Shanghai, prices rose, reversing an 11-month decline. Their month-on-month growth rate hit 0.39 percent in November, 0.13 of a percentage point higher than the national average. (…)

Sales of existing homes in Beijing, for instance, saw a strong rebound in November, with transactions hitting 14,000 units for the month, close to the August peak.

The average price was 23,998 yuan per square meter, up 3.2 percent on the previous month and 6.3 percent on the same period last year, industry statistics showed.

The dark side is that new house prices are now merely 1% below their August 2011 peak. The problem of high housing prices remains.

Dow Chemical CEO Sees Signs of China Pickup

“They are starting to buy goods again, which means they are getting finance,” Mr. Liveris told reporters ahead of Dow Chemical’s annual investor day.

He said destocking by Chinese customers had hit global sentiment harder than the U.S. fiscal cliff and Europe’s slide into recession, prompting his company to shutter plants, shed jobs and trim investment.

Trafigura Predicts China Rebound as Emerging Markets Pick Up  The economy in China, the world’s biggest user of energy and copper, is expected to improve in the first half of next year, according to Trafigura Group, the third-largest independent oil trader.

“The news flows about China are starting to look more positive and we are looking for that to translate into the real economy,” Chief Financial Officer Pierre Lorinet said in an interview in Singapore yesterday. “Especially in the emerging world, we have come out of the cyclical downturn and will be back on the upswing.” (…)

Glencore, the world’s largest commodities trader (…) said on Nov. 1 that it saw no signs of an imminent recovery in global economic conditions.

“We are not that gloomy about the world,” Lorinet said. “There may be some big events we don’t know about, which if materialize could have significant repercussions. But, on balance, otherwise the world seems to be OK.”

Australia cuts rates to three-year low
Central bank responds to slowing resources sector

Policy makers hope an increase in residential construction will keep the economy ticking over as investment in new resources projects peak. But data released on Tuesday showed Australian building approvals fell 7.6 per cent to 12,540 units in October.


Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors discusses the politics that will shortly intrude the U.S. oil market.

In the spirit of economic nationalism, Raymond James believes that “as applications for crude export permits become more common, we would anticipate opposition to emerge, which means that the newly reelected Obama administration will probably suffer political backlash if it signs off on increasing exports of U.S. crude.”

The backlash that would result is likely because there is a common misperception between exporting crude and the price of a gallon of gasoline at the pumps, which is based on the Brent price of oil. “The irony here is that U.S. consumers pay a global price for gasoline, and exporting U.S. ‘land-locked’ light sweet crude would actually help push down the global price of gasoline,” according to Raymond James.

“Keeping the ‘land-locked’ crude in the U.S. does nothing to help domestic consumers, but as we all know, politics and reality can be very different things,” says the research firm.

If Washington prevents oil from leaving the country, the likely outcome is that barrels will begin stacking up in the Gulf Coast area. With the significant growth from areas such as the Bakken, Eagle Ford and the Niobrara Formation in Nebraska, Bank of America Merrill Lynch estimates that by 2017, refiners will likely be “saturated with light oil.”

US Shale Oil Production Growing


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