NEW$ & VIEW$ (4 SEPTEMBER 2013)

GLOBAL GROWTH?

Rising demand adds to evidence world growth is picking up

Global manufacturing growth edges higher

The growth rate of the global manufacturing sector continued to edge higher in August. Although the overall pace of expansion remained only moderate at best, it was nonetheless the fastest signalled since June 2011.

At 51.7 in August, up from 50.8 in July, the JPMorgan Global Manufacturing PMI™ – a composite index* produced by JPMorgan and Markit in association with ISM and IFPSM – signalled growth for the eighth month running.

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Manufacturing production rose for the tenth successive month, with the rate of growth accelerating to the highest since January. The main drag came from broad-based weakness in a number of emerging markets, with India, Taiwan, South Korea, Indonesia, Vietnam and Brazil were among the countries to report lower output volumes.

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US manufacturers reported a slowdown in production growth to a ten-month low in August, which offset some of the momentum gained through a return to growth in China and faster expansions in Japan and the UK. The rate of increase in UK manufacturing output surged to its highest since 1994 and in Japan hit a two-and-a-half year high. The recovery in the euro area also gained traction.

Pointing up The rate of growth in global manufacturing new orders rose to a 30-month high in August. The acceleration was also firmer than that seen for production, raising the possibility that output may continue to rise in the months ahead. Moreover, the ratio of new orders to stocks of finished goods – which acts as a bellwether for the near-term trend in output – also hit a 30-month high. Holdings of pre- and postproduction inventories both fell over the month.

Manufacturing employment ticked higher in August. The latest data point to a slight increase in payroll numbers, with job creation reported by the US, Japan, the UK, Canada, Mexico, India, Taiwan, Turkey, Vietnam, Poland, Czech Republic and Ireland.

August saw average input prices rise at the fastest pace since January. On a regional basis, rates of increase accelerated in Asia and eased slightly in North America. Cost inflation was recorded for the first time in seven months in the European Union.

Euro-Zone Recovery Broadens

Data provider Markit said its poll of executives in euro-zone services and manufacturing companies showed the highest reading for business activity in over two years. The composite purchasing managers index rose to 51.5 in August from 50.5 in July. (…)

Wednesday’s survey results suggest growth, albeit still modest, is spreading to some of the bloc’s weaker countries, said Chris Williams, Markit’s chief economist.

“The euro-zone recovery is looking increasingly broad-based, with more sectors and more countries emerging from recession,” he said.

What’s Behind Manufacturing’s Rebound?

(…) From all of which, a couple of themes seem to be emerging. One, the euro zone looks to be bottoming out. Two, China and Germany are once again proving to be the engines driving other economies. And three, the U.S. seems to be offering support, but without being a significant driver of global growth.

The question now is how sustainable and strong are these boosts likely to be. There’s every reason to believe that although the euro zone is getting a little better, it’s still a long way from health. Car sales remain weak across major euro-zone markets, with France, Italy and Spain reporting big year-on-year declines in the summer. This squares with data showing household credit continues to contract across the single currency area.

German manufacturers are likely to be sucking in regional manufactured imports–components and the like. But a lot of this is likely to be re-exported. The International Monetary Fund continues to point to strong German current-account surpluses for the coming years. If its euro-zone neighbors aren’t importing because their economies are too weak, this implies exports elsewhere.

China has been a strong source of demand for German manufactured goods. Chinese manufacturers seem to be benefiting from recent government efforts to restimulate their economy, as well as from restocking.

So as long as Chinese stimulus continues, the global economy will look better. (…)

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Volume of retail trade up by 0.1% in euro area

Core retail sales declined 0.4% in July after a 0.6% drop in June and a combined 1.8% gain in April-May which itself followed a 1.4% decline in Feb-March. Very volatile. In total, however, core sales are down 0.6% during the last 6 months.

Confused smile German retail sales declined 1.4% in July after a 0.8% drop in June. German sales are off 2.2% since February. France sales jumped 2.0% in July after a 1.4% decline in June. They are up 2.0% since February. Should we believe these stats?

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Why are German retail sales so soft? The FT may have the answer in this article (Germany’s gold standard jobs record masks hidden flaws).

(…) But the German “jobwunder” has come at a cost – the big increase in low paid, precarious types of employment such as part-time work, temporary contracts, so-called “minijobs” and outsourcing. (…)

The number of temporary workers in Germany has almost trebled in Germany over the past 10 years to about 822,000, according to the Federal Employment Agency.

Meanwhile, more than 7.4m Germans have a ‘minijob’ – a relatively new type of German contract that permits an employee to earn up to €450 a month tax free.

Popular with middle class housewives and students, minijobs have become widespread in service industries such as retail, hotels and restaurants.

However, for the majority of recipients, the minijob is their primary form of employment and hourly wages can be extremely low.

Minijobbers are commonly unable to set aside enough money for retirement and minijobs also have not proved the stepping stone to regular employment that many had hoped. (…)

Rings an American bell?

Weekly chain store sales remain slow in the U.S. indicating a pretty sluggish back-to-school season. The 4-week moving average is up 2.2% as of August 31.

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ISI’s consumer surveys, including homebuilders, continue soft.

Mortgage applications rise first time in four weeks: MBA

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1.3 percent in the week ended August 30, after sliding 2.5 percent the prior week. (…)

The refinance index rose 2.4 percent last week. (…)

Pointing up The gauge of loan requests for home purchases, a leading indicator of home sales, fared worse, dipping 0.4 percent. (…)

(CalculatedRisk)

Smile  U.S. small business borrowing rises to six-year high

The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, rose 11 percent in July to 117.7, the highest level since August 2007. (…)

Pointing up Historically, PayNet’s lending index has correlated to overall economic growth one or two quarters in the future.

The stronger reading in July, up 12 percent from a year earlier, came as the Federal Reserve signaled it is prepared to begin reducing its massive stimulus program as soon as this month. (…)

Because small companies typically take out loans to buy new tools, factories and equipment, more borrowing could signal more hiring ahead. (…)

Low financial stress at small businesses, with more of them paying back loans on time, could also bode well for future borrowing.

Delinquencies of 31 to 180 days fell in July to an all-time low of 1.48 percent of all loans made, according to the Thomson Reuters/PayNet Small Business Delinquency Index.

Accounts overdue as a percentage of all loans have fallen steadily since rising as high as 4.73 percent in August 2009.

Support for U.S. Strike on Syria Builds

Obama’s drive to build support for an attack against Syria gained significant momentum. Leaders of a Senate committee reached agreement on a resolution authorizing military strikes against Syria that adds restrictions.

SENTIMENT WATCH: CHANGING MARKET NARRATIVES

John Hussman has been a very vocal and much quoted bear all along this bull market. His latest weekly note seems to warn of a possible change in his narrative:

(…) One result of this discipline is that even though I expect that the present cycle will be completed by a market loss on the order of 40-55%, conditions can certainly emerge over the course of this cycle that could warrant a more constructive stance than we have presently, though possibly less extended than we’d like. The most likely constructive opportunity would emerge from a moderate retreat in market valuations, ideally to “oversold” conditions from an intermediate-term perspective, coupled with an early firming in measures of market internals. Though larger cyclical risks here will probably make some line of defense important in any event, our outlook certainly has room to be more constructive as conditions change. We would expect such opportunities regardless of whether bull or bear market outcomes unfold ahead.

Light bulb  “A New Way to Deal With Telemarketing Calls,” (The Freakonomics Blog)http://bit.ly/145XehQ

A man in the U.K. is charging telemarketers for calling him. From BBC News:

A man targeted by marketing companies is making money from cold calls with his own higher-rate phone number.

In November 2011 Lee Beaumont paid £10 plus VAT to set up his personal 0871 line – so to call him now costs 10p, from which he receives 7p.

The Leeds businessman told BBC Radio 4′s You and Yours programme that the line had so far made £300.

Phone Pay Plus, which regulates premium numbers, said it strongly discouraged people from adopting the idea.

 

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