U.S. factories in May posted their worst month since the end of the recession, as weakness overseas overwhelmed a still-shaky manufacturing recovery at home.
(…) The ISM report showed weakness across the board, with current production declining, employment remaining stagnant, and new orders falling—an especially worrisome sign because it provides little hope for improvement in the months ahead. Brad Holcomb, chairman of the ISM’s manufacturing-survey panel, flagged the decline in new orders as particularly troubling. “I don’t recall the last time” more industries saw declines in new orders than growth, he said.
“It’s not a glitch,” John Silvia, chief economist at Wells Fargo, said of Monday’s report. “It suggests that there is a more fundamental slowdown in the U.S. economy.”
Mr. Silvia estimates economic growth, as measured by gross domestic product, has slowed to 1.2% in the second quarter, from an already tepid 2.4% rate in the first three months of the year. (…)
That report pushed the Citigroup U.S. Economic Surprise Index to its second-lowest reading since early February. The index — which measures the degree to which economists’ consensus estimates have been too optimistic or pessimistic about data releases – fell to negative-22.6. It has been in negative territory for all but two trading days since mid-April. (…)
It’s not just manufacturing data that have been weak. Jobless claims have risen in three of the past four weeks, economic growth during the first quarter was revised lower last week and inflation has slowed to a near standstill.
Overall, consumers and businesses bought vehicles at an annualized rate of 15.3 million vehicles, according to researcher Autodata Corp., the fourth month this year that sales have exceeded a 15 million vehicle pace. However, May’s sales pace was only slightly above the average for the first five months of 2013.
In anticipation of another strong year, U.S. car makers are limiting their traditional summer shutdown to keep cranking out cars. Ford plans to increase its third quarter U.S. production by 10% from a year ago to 740,000 vehicles. (…)
Some auto makers are paying extra rebates to push dealers to increase sales, a practice known as stair-step incentives. For example, Chrysler dealers who met certain month-end sales goals were paid a rebate of $600 a vehicle, while Nissan dealers got up to $500 a vehicle for hitting its targets, according to dealers.
The payments can amount to anywhere from $50,000 for a small dealer to several hundred thousand dollars for larger dealership groups, dealers say. Chrysler and Nissan declined to comment on their programs.
Trend to watch:
U.S. construction activity remains limited to private housing.
Shifting government finances are likely to take an even bigger bite out of growth over the next few years than many now expect, economists at the San Francisco Fed warned Monday.
In a research note, Brian Lucking and Daniel Wilson write fiscal policy headwinds will subtract one percentage point from growth over the next three years beyond the normal fiscal drag that usually comes during times of recovery. If not for the current and likely future stance of fiscal policy, the economy would be growing at a faster rate, which would allow for more robust job growth and, presumably, a more normal stance of monetary policy for the Federal Reserve.
“Federal fiscal policy has been a modest headwind to economic growth so far during the recovery,” the economists wrote. But due to a more rapid than expected contraction in the budget deficits, due largely to rising tax revenue, “federal budget trends will weigh on growth much more severely over the next three years.” (…)
“While our estimates show that fiscal policy has held back the recovery slightly to date, the effect over the next three years looks much bigger,” they wrote. “The excess fiscal drag on the horizon comes almost entirely from rising taxes.”
American consumers always seem to come to the rescue. Weekly chain store sales jumped 1.9% last week, offering hope for a decent summer for retailers. The 4-week m.a., although still in a downtrend, is up 2.8%, its best showing since January.
The number of registered job seekers in Spain fell in May by a record amount and for the second consecutive month, the latest sign that unemployment in the recession-hit economy may be close to peaking.
Spain’s labor ministry said Tuesday the number of people filing for jobless benefits fell 2% to 4.89 million in May from April, the lowest mark since December last year. The number of job seekers fell by 98,265, the largest drop in the month of May ever, the ministry said. The decline was almost double the average fall in May, traditionally a good month for employment because of strong hiring ahead of the summer holiday season.
Still, seasonally-adjusted claims, a gauge of underlying unemployment trends, were practically flat—a fall of just 265 from April—and overall jobless claims still rose 3.8% from May last year.
Spanish exports climbed to a record 223 billion euros ($291 billion) last year as a drought in orders at home pushed companies to upgrade products and go abroad. (…)
The European Commission forecast in May that exports will grow 4.1 percent this year, almost twice the European Union average rate. Exports of goods and services as a share of GDP, at 32 percent, was the highest last year since at least 2000, Eurostat figures show. Sales are rising at double-digit rates in fast-growing markets in Asia and Africa, according to Trade Ministry data. (…)
In the last two years, the number of companies that export has jumped by more than 10 percent each year, compared with an increase of 1.7 percent in 2010, data from government agency Icex show. (…)
Exports with high-technology content increased by 14 percent in 2011, after a 17 percent surge in 2010, according to the most recent data available, published by the statistics institute. (…)
Sales at stores open at least 12 months, measured by value, increased 1.8 percent from a year earlier, the London-based trade group and KPMG said in an e-mailed report today. Total sales rose 3.4 percent.
The good news is that – compared with the fourth quarter of last year – consumer debt in the first quarter fell 2 per cent to $26,935, the first quarterly decline since the third quarter of 2011 and the biggest one since TransUnion started tracking the variable in 2004.
Another encouraging sign is that the year-over-year increase of 3.48 per cent is lower than the increases of the previous two quarters: 5.87 per cent in the fourth quarter of 2012 and 4.60 per cent in the third quarter of last year.
Beijing Caps Home Prices to Control Demand ( This is a long BB article worth reading. Some excerpts:)
The city has enforced citywide price caps since March by withholding presale permits for any new project asking selling prices authorities deem too high, according to developer Sunac China Holdings Ltd. (1918) and realtor Centaline Group. Local officials will need further tightening as they struggle to meet this year’s target of keeping prices unchanged from last year, said Bacic & 5i5j Group, the city’s second-biggest property broker. (…)
New-home prices in Beijing rose by 3.1 percent in April from the previous month, the biggest gain among the nation’s four so-called first-tier cities, and climbed by the most after Guangzhou in May, according to SouFun Holdings Ltd. (SFUN) They rose in each of the first five months of this year. (…)
New-home price gains in April, the biggest since they reversed declines in November, came even after Beijing on April 8 raised the minimum down payment on second-home mortgages to a record 70 percent and banned single-person households from buying more than one residence, a response to former Premier Wen Jiabao’s urge to counter surging values. (…)
Monthly wages including overtime and bonuses rose 0.3 percent from a year earlier to 273,427 yen ($2,746), the Labor Ministry said today in Tokyo. The index of regular earnings, excluding overtime and bonuses, for full-time employees rose to 100.9 in April, the highest since October 2008, according to today’s report.
Major Japanese companies may boost summer bonuses by 7.4 percent, the most since 1990, according to a survey published last week by Keidanren, the country’s biggest business lobby.
At a hedge-fund conference in Las Vegas last month, Michael Novogratz, a principal at New York’s Fortress Investment Group, called Japan “the most exciting place to invest in the world.”
The bet paid off big, at first: The benchmark Nikkei 225 index soared 83% over the seven months to late May. Foreigners fell in love again with a market they had long ago left for dead.
Then, the rally turned with a vengeance. The Nikkei sank 7.3% on Thursday, May 23. It fell 3.2% the next Monday, 5.2% the following Thursday and then 3.7% on Monday of this week. It has fallen 15% in just eight trading days. Mr. Novogratz didn’t return phone calls seeking to determine what he has done with his investments.
Sharp rise in global yields takes toll
US funds that invest in higher-rated bonds with average maturities of under 10 years lost an average 1.8 per cent in May, marking their worst performance since the depths of the financial crisis in October 2008, according to Lipper, a research group.
Such a broad decline has been rare for these funds. With more than $900bn in assets, these investment vehicles have attracted the lion’s share of inflows from savers in search of regular income and low risk since the crisis.
Ben Bernanke may have to refresh his notions of wealth effect!