NEW$ & VIEW$ (17 SEPTEMBER 2013)

Still travelling. Pardon the interruptions.

Industrial production rebounds in August, led by manufacturing

In August, the US industrial sector showed its largest monthly production gain since February, with output rising 0.4% during the month, according to the Federal Reserve. The increase is a big relief after production was unchanged in July, which had marked a
disappointingly weak start to the third quarter.

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The data on goods production were even more encouraging – a 0.7% gain during August more than reversed a 0.4% drop in July. The turnaround was largely due to the autos sector, which reported a surge
in production after a slump one month previously. However, broad-based gains were seen in almost all the major manufacturing sectors, with the exceptions of chemicals and basic metals.

The less-volatile quarterly growth rate picked up to 0.3% in the three
months to August compared with a 0.1% drop in manufacturing output in the three months to June.

The Fed also published data on capacity utilisation, which showed capacity running 2.4% below its long run average. Such excess capacity is good news for inflation, as it means the industrial sector has room to
grow before demand exceeds supply, which often leads to the build-up of inflationary pressures.

(…) However, when viewed alongside last week’s disappointing retail sales data, it is likely that the pace of economic growth will have slowed compared to the 2.5% annualised pace seen in the second quarter.

US retail sales growth disappoints in August, but unlikely to deter Fed tapering

Retail sales rose 0.2% in August against expectations of a 0.4% rise. Core sales (excluding autos, building materials and gasoline), also rose 0.2%, lower than expectations of a 0.3% rise and down from 0.5% in July.
With the latest rise building on a 0.4% increase in July, it looks like retail sales will help drive economic growth again in the third quarter, though it seems unlikely that the contribution will be as large as the 0.9% rise in
sales had in the second quarter.

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Haver Analytics adds:

There were also sizable gains in August at furniture stores, up 0.9% (+4.9% y/y), electronics & appliance stores, up 0.8% (+3.1% y/y) and miscellaneous stores, up 1.0% (+4.2% y/y). So several durable goods sectors had firm performances in the latest period. At the same time, building materials, supplies and hardware sales retreated 0.9% (+7.6% y/y) following their 1.8% surge in July.

Markit continues:

The message from the various official data that are available is therefore that the economy continued to grow in the third quarter, but that growth is likely to have slipped from the 2.5% annualized pace seen in the second quarter.

Although weaker than expected, the retail data are unlikely to stop the Fed starting to withdraw its stimulus at next week’s FOMC meeting. However, the Fed is most likely to make only a small but symbolic reduction to the stimulus programme, perhaps reducing the asset purchases by $5bn per month, due to the fragility of the upturn. Importantly, any tapering is likely to be accompanied by a statement of reassurance that any further tightening of policy will be carefully considered to ensure it does not set back the recovery.

Ghost  BloombergBriefs: The Economy’s Sub-Two Percent Tipping Point

There’s a little known rule of thumb in the economics world: when the annual growth rate of key U.S. indicators falls below 2 percent, the economy slides into recession in the next 12 months. Real GDP growth was an annual 1.6 percent in the second quarter. It was last at 2 percent in the fourth quarter 2012, down from 3.1 percent in the third. In addition, real disposable personal incomes (0.8 percent), and real consumer spending (1.7 percent) flash warning signs. With GDP,
they possess exceptional recession-predicting abilities.

The reason is simple: like riding a bike, if you don’t pedal, you tip over.

(…)Another rarely-cited statistic with excellent predictive qualities is the pace of real final sales of domestic product, which measures the level of goods produced in the economy that are actually sold rather than placed in inventory. The current 12-month pace is 1.6 percent. Alternatively,
some economists look to the level of final sales to domestic purchases,
which represents GDP less net exports and inventories.

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These two indicators are often seen by Wall Street economists as preferred measures since they pertain to domestic demand, not what is produced or stockpiled. The year-on-year change in real final sales to domestic purchases is 1.5 percent.

(…) The more meaningful household-sensitive component — revolving
credit — contracted by an annualized 2.6 percent in July following a 5.2 percent decline in the previous month. During the last 12 months, revolving credit advanced 0.8 percent — essentially the same pace
it has held since early 2012. (…)

Retail sales at general merchandise stores — the second largest category of retail sales behind motor vehicles and parts — fell 0.2 percent month-on-month in August and 0.3 percent from August 2012. These are all signs of a consumer led slowdown.

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ShopperTrak Forecasts a Weak Holiday

ShopperTrak, which measures store traffic in 60,000 locations world-wide and crunches other data to come up with its forecast, expects retail sales in November and December to rise by 2.4% from a year earlier, less than the 3% increase in 2012 and below the gains of around 4% in 2011 and 2010.

Early forecasts are often well off the mark, and ShopperTrak’s forecasts have tended to undershoot actual Commerce Department data. But ShopperTrak’s projection echoes weak back-to-school results from some retailers and a tepid showing for retail sales last month. Consumers remain cautious despite improvements in hiring and the housing market. (…)

ShopperTrak predicted a 2.5% increase in retail sales in 2012, while the actual increase was 3%, based on sales of general merchandise, apparel and accessories, furniture and other categories as measured by the Commerce Department. In 2011 the prediction was for a 3% increase, while the actual rise came in at 4%.

Producer Prices Rise 0.3%

But core prices, which exclude volatile energy and food components, were flat, marking the first time since October that category failed to rise.

Compared with a year ago, overall prices were up 1.4%, the smallest year-over-year increase since April. Core prices were up 1.1% from a year ago.

Eurozone employment downturn eases sharply in second quarter

Employment in the eurozone continued to fall in the second quarter, but the rate of decline eased markedly, adding to hopes that the region is on a recovery path.

Employment in the eurozone fell 0.1% in the second quarter, according to Eurostat, taking the total down to 145 million, its lowest since the final quarter of 2005. Employment has fallen continually over the past two years as the region moved back into recession in 2011. However, the rate at which employment is falling has eased significantly. The 0.1% drop in the second quarter compares with a 0.4% fall in the first quarter and a 0.3% decline in the final three months of last year. That equates to 33,000 jobs being lost per month in the second quarter compared to more than 200,000 in the first quarter.

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PMI survey data also suggest that the rate of job losses has eased further in the third quarter so far: an average composite employment index reading of 48.5 compares with an average of 47.3 in the second quarter.

Looking at the four largest economies, employment edged up by 0.1% in Germany in the three months to June, but was flat in France. Spain and Italy both saw the rate of decline ease to -0.5% and -0.3% respectively, down from -1.0% and -1.2% in the first quarter. Elsewhere, the Netherlands saw the rate of decline pick up to -0.4%, but employment rose in Ireland (+0.5%), Austria (+0.2%), Portugal (+0.8%) and
even Greece (+0.1%).

The recent cut in employment took place despite GDP rising 0.3% over the same period. However, comparing employment changes with GDP highlights how, since the financial crisis, jobs have been cut at a significantly faster rate than the pre-crisis relationship between GDP and employment would suggest, pointing to a steep improvement in labour productivity over this period.

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Auto  Lightning  Europe August Car Sales Drop as Demand Lowest on Record

Registrations dropped 4.9 percent to 686,957 vehicles from 722,458 cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. Eight-month sales declined 5.2 percent to 8.14 million autos.

The European car market rose 4.9 percent in July to 1.02 million vehicles. The gain was the second this year, following a 1.7 percent increase in April that marked the first growth in European car sales in 19 months. The trade group releases July and August sales figures simultaneously each September.

Registrations in the past two months were affected by differences in the number of business days versus 2012, with one more in July and one less in August, the ACEA said today.  (…)

Four of Europe’s five biggest automotive markets shrank last month. Deliveries in top-ranked Germany dropped 5.5 percent to 214,044 vehicles. That compared with a 2.1 percent increase in July. The U.K. market, the region’s second biggest, expanded 11 percent to 65,937 cars in August. (…)

Record Saudi oil output fills supply gap Saudi pumps out more crude than at any time since the 1970s

(…) The trigger for the jump in Gulf production has been huge disruption to supplies from Libya, where striking workers and militias have reduced exports from about 1m b/d to merely a trickle. Saudi Arabia has responded by pushing output to 10.2m barrels a day in August, according to the International Energy Agency, the most in IEA records. The country is now reaping more than $1bn a day in export revenues.

The UAE and Kuwait have also both set records for output this summer, at about 2.8 mb/d. In August the three large Gulf producers met 17.1 per cent of global demand. In thirty years of IEA data, their share has not topped 18 per cent. (…)

The IEA estimates that even when producing at current levels, Saudi Arabia still has more than 2mb/d of spare production capacity. Ali-al Naimi, the kingdom’s oil minister, emphasised again last week Riyadh’s willingness to meet any demand.

But that appears to have required a subtle shift in policy. Saudi Arabia has been slowly bringing online its giant offshore Manifa oilfield, which should eventually be able to produce 900,000 b/d.

Riyadh had originally planned to send Manifa output to a domestic refinery, while throttling back production at some of its other fields in order to prolong their lives. That would have made less oil available to the global market. But the IEA thinks that has not happened. (…)

By factoring in Manifa output, the IEA has raised its estimate of Saudi output capacity by more than 500,000 b/d this year, to 12.5 mb/d. That provides some buffer to the market, and means the IEA is hopeful that the current tightness in the oil market will ease over the next few months, as refineries are shut for maintenance.

Within the Gulf, though, Saudi Arabia’s ability to bring on new production at will appears to be an exception. The UAE has pushed back its target for increasing production capacity to 3.5m b/d to 2020, from 2017. Kuwait is still targeting 4m b/d by 2020, but is struggling to overcome rapid decline rates from its existing fields.

Both countries are currently pumping near their maximum capacity, according to the IEA. Qatar, meanwhile, has seen output fall slightly in recent years. (…0

Mexico to speed up infrastructure spending
President’s pledge is an attempt to revive sluggish economic growth

Mexican president Enrique Peña Nieto, under fire over tax proposals that herald pain for the middle class, has promised to accelerate spending of 27bn pesos ($2bn) on infrastructure, kick-starting access to credits and boosting the housing industry.

The move is an attempt to revive sluggish economic growth before the end of the year, and reveals the government’s concern with the economy’s sudden deflation. It grew just 1.5 per cent in the first half after shrinking 0.7 per cent in the second quarter, and official estimates of modest 1.8 per cent growth this year are looking optimistic at best.

 Canadian Home Sales Jump

Existing home sales across Canada rose 2.8% in August from July—and surged by 11.1% from a year ago—as real-estate activity ramped back up in most major cities, the country’s real-estate trade group said Monday.

 

Canada Household Debt Hits Record High

Canadian household debt hit a record high in the second quarter as consumers continued to take out mortgages. Net worth, meanwhile, rose 3%.

Canadian household debt, deemed by policymakers as the biggest domestic risk facing the Canadian economy, rose to a record high in the second quarter of 2013 as consumers continued to take out mortgages, albeit at slower pace compared to the same year-ago period, Statistics Canada said Friday.

The data agency said the ratio of household credit-market debt to disposable income hit 163.37% in the April-to-June period, up from the 162.10% level recorded in the first quarter.

According to the figures, Canadians borrowed 25.9 billion Canadian dollars ($25.1 billion) from financial institutions in the three-month period, with mortgages accounting for nearly 70% of that total. However, the amount of mortgages issued to Canadians in the second quarter totaled C$18.24 billion, down from C$21.85 billion a year earlier.

Credit-market debt — which includes mortgages, lines of credit and other loans — totaled roughly C$1.72 trillion at the end of June, for a quarter-over-quarter increase of 1.6%.

Meanwhile, Canadian net worth rose 3.1% in quarter to C$7.31 trillion, or C$207,300 on a per-capita basis.

Sweden’s economy shrinks in Q2
Transport sector helps industrial output grow in Hungary

Final figures for April to June showed that the economy shrank 0.2 per cent quarter on quarter . It was still 0.1 per cent bigger than it was in the second quarter of 2012. Gross fixed capital formation fell 3 per cent year on year, exports fell 2.3 per cent and imports dropped 1.1 per cent. However, household consumption did increase 1.9 per cent and government consumption rose 2 per cent.

Hungary: Industrial output increased 2.5 per cent year on year in July, aided by a strong performance in the transport sector, which increased 12.9 per cent. A 4.9 per cent increase in food production also helped, though the electronics sector struggled. New orders were up 5.9 per cent year on year, after two months of contractions and total orders surged 9.1 per cent.

 

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