Only really weak point is in New Export Orders.

At 53.7 in January, down from 55.0 in December, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™), which is based on approximately 85% of usual monthly replies, signalled the slowest improvement in overall business conditions for three months. That said, the index was above the neutral 50.0 mark and slightly higher than its average for 2013 (53.5). Therefore, the latest survey results still indicate solid underlying growth across the U.S. manufacturing sector.


Slower rates of output and new order growth were the main factors behind the fall in the headline PMI from December’s 11-month high. Although manufacturing production still rose at a solid clip, the latest expansion was the slowest since last October. Companies reporting higher output levels widely commented on resilient domestic demand and efforts to reduce their pipeline of unfinished business in January. Some panel members noted that extreme weather conditions in January had temporarily disrupted output levels.

Meanwhile, latest data indicated a further slowdown in new order growth from November’s 10-month peak. As with the weaker trend for output, there were reports from survey respondents that the unusually cold weather had a negative influence on new business intakes. Moreover, there were some signs of weaker spending patterns among international clients at the start of 2014. Volumes of new export business decreased during January for the first time in four months, although the rate of decline was only marginal.


U.S. manufacturers indicated marked job hiring during January, with the rate of growth only slightly slower than in December. Anecdotal evidence suggested that the temporary nature of disruptions from extreme weather conditions, alongside efforts to reduce backlogs, contributed to solid staff hiring trends at the start of 2014. Levels of unfinished work were reduced for the first time since last August, despite suppliers’ lead-times lengthening to the greatest degree for almost five-and-a-half years. Backlogs were lowered in part through the use of inventories, as finished goods stocks fell at the fastest pace since September 2009.

January data indicated that input cost inflation slowed from the 11-month high recorded at the end of 2013. A number of manufacturers cited rising prices for steel, aluminum and plastics. Meanwhile, factory gate charges across the U.S. sector also increased at a slower pace in January, with the rate of inflation the weakest for three months.




The euro area private sector economy grew for a seventh consecutive month in January, according to the flash Markit Eurozone PMI®, with the rate of growth accelerating to the fastest since June 2011. The headline PMI (which tracks output across both manufacturing and services) rose from 52.1 in December to 53.2.


Growth picked up in Germany and the rate of decline eased in France, while the rest of the region also saw a strengthening upturn.


New orders across the euro area rose for a sixth successive month, albeit growing at a rate unchanged on December. Backlogs of work also continued to fall marginally, suggesting that the level of demand, although rising, remains insufficiently strong to enable companies to build up a pipeline of orders to fall back on if demand weakens.


Employment was consequently trimmed slightly again, having stabilised in December, as companies remained uncertain about expanding capacity. Employment has not risen since December 2011, though the trend in the rate of job losses has eased considerably over the past year.

Selling prices also continued to fall, highlighting the fragility of demand, and have now declined continually over the past two-and-a-half years. The latest reduction was only modest, however, and the weakest since May 2012. The easing in the rate of decline reflected in part the need to pass higher costs on to customers. Meanwhile, the rate of input cost inflation picked up compared with December but was slightly below November’s recent peak.

Manufacturing continued to lead the recovery, expanding at a robust pace in January. Output, new orders and new export orders all showed the largest monthly rises since April 2011, each growing for a seventh successive month. The improvement in demand encouraged goods producers to take on more staff for the first time since the start of 2012. Although only modest, the increase in employment was the best seen since September 2011.

Service sector companies saw a more moderate increase in activity than manufacturers, but nevertheless reported that activity grew at the second-fastest rate since June 2011 (the latest improvement exceeded only by the rise recorded in September). Moreover, expectations about the year ahead held steady at a two-and-a-half year high.

However, an easing in growth of services new business suggests that any expansion of activity in February may remain weak. Slower new business growth was also a contributory factor behind firms cutting their workforce numbers again, reversing a marginal rise in December (which had been the first increase since December 2011).

Wide national divergences also persisted, with strong and accelerating growth in Germany contrasting with an ongoing downturn in France, although the latter did see an easing in the rate of decline.

Growth in Germany hit the highest since June 2011. The strong pace of expansion was fuelled by a seventh consecutive monthly rise in new business. Manufacturing output surged at the strongest pace since April 2011, but services activity growth picked up only marginally on December. Employment in Germany rose only modestly as a result, the rate of job creation sliding compared with December. Staffing levels have nonetheless now risen in each of the past three months.

In France, output fell for a third successive month, through the rate of decline eased to the slowest seen over this period. Rates of decline eased in both manufacturing and services. New orders likewise fell at a reduced rate, but the pace of job losses accelerated slightly.

Output growth in the rest of the region (excluding France and Germany) picked up to the highest since February 2011, with growth recorded for a sixth month running. The rate of job losses meanwhile eased to the weakest in the current 32-month sequence, with employment falling only very marginally in January.



  • Flash China Manufacturing PMI™ at 49.6 in January (50.5 in December). Six-month low.
  • Flash China Manufacturing Output Index at 51.3 in January (51.4 in December). Three-month low.

The marginal contraction of January’s headline HSBC Flash China Manufacturing PMI was mainly dragged by cooling domestic demand conditions. This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth. As
inflation is not a concern, the policy focus should tilt towards supporting growth to avoid repeating growth deceleration seen in 1H 2013.

Markit’s comments above fails to mention that export orders are decreasing at a faster pace an the work backlogs have turned negative.image



NEW$ & VIEW$ (17 JANUARY 2014)

Philly Fed Stronger Than Expected

Following on the heels of yesterday’s stronger than expected Empire Manufacturing report, today’s release of the Philly Fed Manufacturing report for January also came in stronger than expected.  While economists were looking for the headline index to come in at a level of 8.7, the actual reading was slightly higher at 9.4, which was three 3 points higher than the reading for December.

As shown, the majority (5) of components increased this month, while just three declined.  The biggest increases this month came from Number of Employees and Unfilled Orders.  The fact that Number of Employees increased seems to provide more evidence that last Friday’s employment report was an outlier.  On the downside, the biggest declines were seen in Inventories, Average Workweek, and New Orders.  Believe it or not , the 35.6 decline in the Inventories index was the largest month to month drop in the history of the survey (since 1980).  While that drop is large for one month, it takes that index back to levels seen as recently as April.

Homebuilder Sentiment Slips

Homebuilder sentiment for the month of January slipped from a revised reading of 57 down to 56 (expectations were for 58).  While sentiment slipped, it is important to note that any reading above 50 indicates optimism among homebuilders.

The table to the right breaks out this month’s report by components and region.  As shown, Present Sales, Future Sales, and Traffic all declined this month, with the biggest drop coming in traffic.  (…)

The chart below shows the historical levels of the NAHB Sentiment survey going back to 1985 with recessions highlighted in gray.  The current level of 56 is down slightly from the post-recession high of 58 reached in August.  While the index has seen a remarkable improvement since the lows from the recession, optimism still has some work to do on the upside before getting back to the highs from the prior expansion.


So while everybody is talking deflation risk:

  • Core CPI rose at a 1.8% annualized rate in Nov-Dec. and is up 1.7% YoY.
  • Same with the Cleveland Fed’s 16% trimmed-mean Consumer Price Index .
  • The median CPI has accelerated from +0.1% MoM in October to +0.2% in November and to +0.3% in December. The median CPI is up 2.1% YoY in December, unchanged for 6 months.



The WSJ recently polled economists on a number of items. The tilt towards faster growth is clear:image

Even more interesting is that the WSJ did not bother to enquire about inflation and interest rates. Bernanke really did a fine job!

Shopping Spree Ends in Retail Stocks

A disappointing holiday shopping season has investors dialing back expectations for retail stocks after last year’s big runup in the sector.



Stores Confront New World With Less Foot Traffic

A long-term change in shopper habits has reduced store traffic—perhaps permanently—and shifted pricing power away from malls and big-box retailers.

(…) Retailers got only about half the holiday traffic in 2013 as they did just three years earlier, according to ShopperTrak, which uses a network of 60,000 shopper-counting devices to track visits at malls and large retailers across the country. The data firm tracked declines of 28.2% in 2011, 16.3% in 2012 and 14.6% in 2013.

Online sales increased by more than double the rate of brick-and-mortar sales this holiday season. Shoppers don’t seem to be using physical stores to browse as much, either. Instead, they seem to be figuring out what they want online then making targeted trips to pick it up from retailers that offer the best price. While shoppers visited an average five stores per mall trip in 2007, today they only visit three, ShopperTrak’s data shows. (…)

On Wednesday, J.C. Penney said it planned to close 33 underperforming stores and trim 2,000 positions to focus on locations that generate the strongest profits.

Such closings could accelerate: Leases for big retailers typically last between 10 and 25 years, meaning many were negotiated before e-commerce really took off.

Only 44 million square feet of retail space opened in the 54 largest U.S. markets last year, down 87% from 325 million in 2006, according to CoStar Group, Inc., a real-estate research firm. (…)

NMHC Survey: Apartment Market Conditions Softer in Q4 (CalculatedRisk)

Apartment market conditions weakened a bit in January compared with three months earlier. The market tightness (41), sales volume (41) and debt financing (42) indexes were all a little below the breakeven level of 50, although the equity financing index rebounded to 50. (…)

Although markets are a little looser than in October, this is largely seasonal; overall markets remain fairly tight.

“New supply is finally starting to arrive at levels that will more closely match overall demand. In a few markets, we are seeing completions a little higher than absorptions, but this is likely to be short term in nature. Fundamentally, demand for apartment homes should be strong for the rest of the decade (and beyond) – provided only that the economy remains on track.”


From SocGen via ZeroHedge:

US corporates do indeed hold lots of cash, which is currently at record levels, but they also hold record levels of debt. Net debt (so discounting those massive cash piles) is 15% above the levels seen in 2008/09. The idea that corporates are paying down debt is simply not seen in the numbers.

Don’t forget that corporate cash is heavily concentrated in just a few companies.



Shell Warns On Profit

The company said profit would be significantly weaker partly because of higher exploration costs. The warning is rare for an oil major, and marks an inauspicious start to energy earnings reports.

The oil major said it expects to post fourth-quarter earnings of $2.2 billion on a current-cost-of-supplies basis—a figure that factors out the impact of inventories, making it equivalent to the net profit reported by U.S. oil companies—down from $7.3 billion a year earlier. Full-year earnings on a CCS basis are expected to be about $16.8 billion, down from $27.2 billion last year.

Shell blames refining woes for warning Oil group issues first profits warning in 10 years

And the wrap up:

Shell warns of ‘significant’ profit miss

Royal Dutch Shell issued a “significant” profit warning on Friday, detailing across-the-board problems and the extent of the challenges facing the oil major’s new boss Ben van Beurden, who took over two weeks ago.

Now you know! Winking smile


Emerging Market Growth Checked At Year End

imageEmerging economies are no longer expanding at the rapid rates recorded before the onset of the global financial crisis. Nor have they been able to replicate the pace seen in late-2009 and early-2010 during the early post-crisis bounce. Still, despite the relative weakness, there is no indication of any imminent descent into recession: consistently over 50, the index remains well above the traumatic levels recorded in 2008 and the first half of 2009.

In relative terms, however, the emerging market story remains disappointing, at least compared with the US and the UK, where recent equivalent business surveys have been in the high 50s and, on some occasions, in the low 60s. Even the Eurozone, held back by a very soft performance by France, appears currently to be doing a bit better than the emerging world.

The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI™ surveys, signalled overall growth of output across global emerging markets in December. But the EMI fell to 51.6, from 52.1 in
November, signalling a weaker rate of expansion.

Manufacturing output continued to rise at a faster pace than services activity, and the rate of growth was only fractionally weaker than November‟s eight-month high. Meanwhile, service sector output rose at the slowest rate in three months.

Goods output growth was broad-based across the economies covered at the end of 2013, with the strongest expansions indicated in Taiwan, the Czech Republic and Turkey. Chinese manufacturing output growth eased from November‟s eight-month high.

New business inflows in global emerging markets rose for the fifth month running, albeit at the weakest rate since September. Backlogs continued to expand marginally, in line with the broad trend shown throughout the fourth quarter.

Inflationary pressures in emerging markets remained muted in the final month of 2013, with average input prices rising at the slowest pace since July. This led to the weakest increase in output prices in the current five-month sequence of inflation.



NEW$ & VIEW$ (7 JANUARY 2014)

Weaker Than Expected ISM Services

Monday’s ISM Services report for December came in weaker than expected.  While economists were expecting the headline reading to come in at a level of 54.5, the actual reading was a bit weaker at 53.0.  Taking both the ISM Manufacturing and Non Manufacturing reports and accounting for their size in the overall economy, the combined reading for December fell to 53.5.

Sad smile Slumping new orders and backlog! First contraction in new orders since July 2009.

U.S. Rents Rise as Market Tightens

Nationwide, landlords raised rents by an average of 0.8% to $1,083 a month in the quarter, according to a report to be released Tuesday by Reis Inc., a real-estate research firm. While that is below the previous quarter’s 1% increase, it is above the 0.6% gain seen in 2012’s final quarter. Rents climbed 3.2% for all of 2013.

The vacancy rate, meantime, fell to 4.1% in the fourth quarter from 4.6% in the year-earlier quarter, remaining well below the 8% peak at the end of 2009. (…)

Nearly 42,000 units were completed in the fourth quarter, the most since the fourth quarter of 2003, and about 127,000 for all of 2013, according to Reis. (…)

In 2014, completions should total more than 160,000 apartments, roughly one-third more than the long-term historical average, according to Reis. That could cause the national vacancy rate to rise slightly for the first time since 2009.

CoStar Group, another real-estate research firm, predicts new-apartment supply will peak this year at 220,000, but an additional 350,000 units will hit the nation’s 54 largest markets in 2015 and 2016 combined. (…)

Euro-Zone Inflation Rate Slips

The European Union’s statistics agency Tuesday said a preliminary reading showed consumer prices in the 17 countries that then shared the euro rose by just 0.8% over the 12 months to December, a decline in the annual rate of inflation from 0.9% in November.

After stripping out prices for food and energy, which tend to be more volatile, prices rose by just 0.7% in the 12 months to December—the lowest rate of “core” inflation since records began in January 2001. That suggests that weak domestic demand is becoming an increasingly significant source of disinflationary pressure, adding to the impact from falling world energy prices and the end of a period of administered price rises as governments sought to repair their finances by increasing revenue from sales taxes and charging more for services such as health care. (…)

Separate figures from Eurostat suggested consumer prices are unlikely to rise sharply in coming months. The agency said the price of goods leaving factory gates in November fell for the second straight month, although by just 0.1%.

Slump in Trading Threatens Profit Engine

The trading boom that helped reshape global investment banks over the past decade is sputtering, raising fears that one of Wall Street’s biggest profit engines is in peril.

(…) Executives have warned that lackluster markets could lead to year-over-year declines in fixed-income, commodities and currency trading revenue when banks begin reporting fourth-quarter results next week. That would mark the fourth consecutive drop and the 11th in the past 16 quarters.

Few corners of banks’ trading operations have escaped the slump. A 10-year commodities rally has fizzled, while foreign-exchange trading volume has fallen sharply from its 2008 peak. Since the financial crisis, investors have eschewed exotic fixed-income securities in favor of low-risk government bonds, which are less profitable for banks, and overall trading volumes have dipped.

A rash of new regulations, meanwhile, have prompted Wall Street firms to exit from once-lucrative businesses such as energy trading and storing and transporting physical commodities.

The slump has gone on so long that some observers are beginning to question whether it is part of an ordinary down cycle or a more permanent shift. (…)


The French Manufacturing PMI fell for the third consecutive month in December to 47.0. It has been stuck below the neutral 50 level for almost two years. On this measure, the French manufacturing sector is the weakest in the Eurozone by some margin. Even the Greek manufacturing PMI improved slightly last month, from 49.2 to 49.6. Official surveys of the French economy paint a somewhat brighter picture. According to a survey by the French statistical agency, Insee, business manager’s perceptions of the overall business climate improved by 2 points to 100 in December, in line with the historic average.

France continues to suffer from declining competitiveness, both in absolute terms and relative to its Eurozone competitors. According to IMF estimates of the real effective exchange rate, the competitiveness of the French manufacturing sector has deteriorated by 12% against Germany since the debt crisis hit in 2010. Over the same period, it has fallen much further against those countries that have experienced deflation. For example, French competitiveness has declined by 28% against Ireland, and by 23% against Greece. Our central view is that France will continue to disappoint through 2014, with growth around zero – the Consensus is looking for something closer to 1%. Risks to our central view are to the downside.



Great dollar rally of 2014 as Fukuyama’s History returns in tooth and claw China and Japan are on a quasi-war footing, one misjudgement away from a chain of events that would shatter all economic assumptions (By Ambrose Evans-Pritchard  Tks Fred!)

We enter the year of the all-conquering US dollar. As the global security system unravels – with echoes of 1914 – the premium on the world’s safe-haven currency must rise.

The effect is doubly powerful since the US economy is simultaneously coming back to life. America has shaken off the most drastic fiscal tightening since the Korean War, thanks to quantitative easing. Growth is near “escape velocity” – at least for now – at a time when half of Europe is still trapped in semi-slump and China is trying to cool the world’s most dangerous credit boom.

As the Fed turns off the spigot of dollar liquidity, it will starve the world’s dysfunctional economy of $1 trillion a year of stimulus. This will occur through the quantity of money effect, hitting in a series of hammer blows, regardless of whether interest rates remain at zero. The Fed denies that this is “tightening”, and I have an ocean-front property to sell you in Sichuan.

It is hard to imagine a strategic and economic setting more conducive to a blistering dollar rally, a process that will pick up speed as yields on 10-year US Treasuries break through 3pc. (…)

In case you had forgotten, China has imposed an Air Defence Indentification Zone (ADIC) covering the Japanese-controlled Senkaku islands. The purpose of this escalation in the East China Sea is to test US willingness to back its military alliance with Japan, just as Kaiser Wilhelm provoked seemingly petty disputes with France to test Britain’s response before the First World War.

The ploy has been successful. The US has wobbled, wisely or not depending on your point of view. While American airlines comply, Japanese airlines fly through defiantly under orders from Japan’s leader Shinzo Abe. Mr Abe has upped the ante by visiting Tokyo’s Yasukuni Shrine – the burial place of war-time leader Tojo – in a gesture aimed at Beijing.

Asia’s two great powers are on a quasi-war footing already, one misjudgement away from a chain of events that would shatter all economic assumptions. It would leave America facing an invidious choice: either back Japan, or stand aloof and let the security structure of East Asia disintegrate. (…)

The US is stepping back from the Middle East, leaving the region to be engulfed by a Sunni-Shia conflict that resembles Europe’s Thirty Years War, when Lutherans and Catholics battled for supremacy. Sunni allies are being dropped, Shia Iran courted. Even Turkey risks succumbing, replicating Syria’s sectarian fault lines. (…)

In Europe, the EU Project has by now lost so much caste that Ukraine’s leaders dare to tear up an association accord, opting instead for a quick $15bn from Vladimir Putin’s Russia. (…)

So with that caveat let me try to make sense of global economic forces. Bearish as usual, I doubt that we are safely out of the woods, let alone on the start of a fresh boom. How can it be if the global savings rate is still rising, expected to hit a fresh record of 25.5pc this year? There is still a chronic lack of consumption.

As the Fed tightens under a hawkish Janet Yellen, a big chunk of the $4 trillion of foreign capital that has flowed into emerging markets since 2009 will come out again. It is fickle money, late to the party. (…)

Euroland will be hit on two fronts by Fed action. Bond yields will ratchet up, shackled to US Treasuries. Emerging market woes will ricochet into the eurozone. The benefits of US recovery will not leak out as generously as in past cycles. Dario Perkins from Lombard Street Research says the US is now more competitive than at any time since the Second World War. America is poised to meet its own consumption, its industries rebounding on cheap energy. Europe will have to generate its own stimulus this time. Don’t laugh. (…)

Credit to firms is still contracting at a rate of 3.7pc, or 5.2pc in Italy, 5.9pc in Portugal and 13.5pc in Spain. This is not deleveraging. The effects have been displaced onto public debt, made worse by near deflation across the South.

Italy’s debt has risen from 119pc to 133pc of GDP in three years despite a primary surplus, near the danger line for a country with no sovereign currency. For all the talk of reform – Orwellian EMU-speak for austerity – Italy is digging itself deeper into one hole even as it claws itself out of another, its industries relentlessly hollowed out. Much the same goes for Portugal and, increasingly, France. (…)

There is just enough growth on offer this year – the ECB says 1pc – to sustain the illusion of recovery. Those in control think they have licked the crisis, citing Club Med current account surpluses. Victims know this feat is mostly the result of crushing internal demand. They know too that job wastage is eroding skills (hysteresis) and blighting their future. Yet they dare not draw their swords.

It will take politics – not markets – to break this bad equilibrium, the moment when democracies cease to tolerate youth unemployment of 58pc in Greece, 57.4pc in Spain, 41.2pc in Italy and 36.5pc in Portugal.

Unemployment in the eurozone (yellow), US (red) and Japan (light blue)

The European elections in May will be an inflexion point. A eurosceptic landslide by Marine Le Pen’s Front National, Holland’s Freedom Party, Italy’s Cinque Stelle and Britain’s UKIP, among others, will puncture the sense of historic inevitability that drives the EU Project. (…)

Over all else hangs the fate of China. The sino-bubble is galactic. Credit has grown from $9 trillion to $24 trillion since late 2008, as if adding the US and Japanese banking systems combined. The pace of loan growth – 100pc of GDP over five years – is unprecedented in any major economy, eclipsing the great boom-bust dramas of the past century.

The central bank is struggling to deflate this gently, with two spasms of credit stress in the past six months. I doubt it will prove any more adept than the Bank of Japan in 1990, or the Fed in 1928, and again in 2007. This will be a bumpy descent.

China may try to cushion any hard-landing by driving down the yuan. The more that Mr Abe forces down the Japenese yen, the more likely that China will counter with its own devaluation to protect the margins of it manufacturing industry. We may be on the brink of another East Asian currency war, a replay of 1998 but this time on a much bigger scale and with China playing a full part.

If so, this will transmit an a further deflationary shock through the global system, catching the West sleeping with its defences against deflation already run down. The US may be strong enough to cope. For Europe it would be fatal. The denominator effect would push Club Med into a debt compound spiral. Let us give it a 30pc probability. Happy new year.



The upturn in the eurozone private sector economy gained momentum in December. Although the recovery remained modest and fragile overall, growth of output was nonetheless recorded throughout the second half of 2013.

At a three-month high of 52.1 in December, up from 51.7 in November, the final Markit Eurozone PMI® Composite Output Index rose to its second highest level during the past two-and-a-half years. Moreover, the average reading for the final quarter of the year was above that for the prior quarter.


Manufacturing continued to lead the recovery in December. Growth of production accelerated to its fastest since May 2011, as new orders improved aided by a solid increase in new export business. Service sector business activity also increased further, although the rate of expansion remained modest and eased to a four-month low. This mainly reflected the ongoing weakness of some domestic markets, hindered on the consumer side by still high unemployment in certain nations.

Marked performance differentials also remained prominent between the member states of the currency union. Ireland and Germany stayed atop
the PMI output growth league table, while Spain was the biggest mover over the month with its PMI output index surging to a near six-and-a-half year record. Output in Italy held steady, while France was the only one of the big-four nations to report contractions of both output and new orders.

Eurozone employment was unchanged in December. This was a slight improvement compared to the marginal job losses signalled by the earlier flash estimate, and halted a 23-month sequence of cuts to payroll numbers. Germany and Ireland both saw solid and accelerated rates of job creation, with the rate of increase in Germany hitting a near two-year record. Although further losses were reported in France, Italy and Spain, the rates of decline eased in all three nations.

Average input prices rose for the seventh month running in December. However, the rate of inflation eased since November and was low by the
historical standards of the survey. Pricing power remained weak, as highlighted by further selling price discounts at service providers. In contrast, manufacturing output charges rose slightly.

Pointing up The recovery in the eurozone service sector was extended to five months in December. At 51.0, unchanged from the earlier flash estimate, the Eurozone Services Business Activity Index fell to a four-month low, down from November’s 51.2, to signal an easing in the overall rate of increase.

Ireland registered the sharpest rate of expansion in services output of the five nations covered, with growth rising to a near seven-year record. Spain also reported faster expansion – the strongest in nearly six-and-a-half years – while Germany reported slower growth than in November. France and Italy continued to contract, with rates of decline broadly unchanged from November and similarly modest.

Growth of new business at eurozone service providers remained lacklustre during December, as faster increases in Ireland and Spain were offset by slower growth in Germany and outright declines in France and Italy. The subdued trend in demand meant that outstanding business in the euro area service sector declined again, extending the current sequence to two-and-a-half years.

Companies maintained a positive outlook for the sector in December, amid expectations that an improvement in underlying economic conditions in 2014 would support higher demand. The overall degree of positive sentiment rose to its highest since mid-2011, with confidence improving in France and Italy and remaining strong in Ireland and Spain. German service providers were the least optimistic overall.

Employment was broadly unchanged over the month in December, following marginal job losses in the prior two months. Payroll numbers rose at faster rates in Germany (two-year high) and Ireland (five-month peak). This was offset by ongoing job losses in France, Italy and Spain.

Input price inflation eased to a six-month low in December, down from November’s 11-month record and below the long-run survey average. Service providers’ pricing power remained weak, however, leading to a drop in output charges for the twenty-fifth successive month. Only Germany reported an increase in selling prices.




HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled an increased amount of output for the fifth successive month in December. The rate of expansion eased from November’s eight-month high, though remained modest. This was
signalled by the HSBC Composite Output Index posting at 51.2 in December, down from 52.3 in November.


Chinese manufacturers reported a further expansion of output in December. Despite having eased over the month, the rate of growth remained moderate overall. Service providers also reported increased business activity in December. That said, the rate of growth eased to a
marginal pace that was the weakest since August 2011. The latter was signalled by the HSBC China Services Business Activity Index posting at 50.9 in December, down from 52.5 in November.

New business rose across both the manufacturing and service sectors in December. Goods producers reported a modest expansion that was similar to the previous month. Service providers also signalled a modest rate of new order growth in December, though it was the weakest in six
months. Consequently, total new work increased at a moderate pace at the composite level.

December data signalled divergent trends by sector for employment. Chinese manufacturers reported net job shedding for the second successive month, while service providers saw payroll numbers increase for the fourth month in a row. Moreover, it was the strongest expansion
of workforce numbers in the service sector since June. At the composite level, staffing levels were broadly unchanged for the second month running.

The level of work-in-hand at manufacturers increased for the fifth consecutive month in December. The rate of accumulation was moderate, despite having eased slightly from November. Meanwhile, service providers signalled a reduced amount of outstanding business, following no change one month previous. That said, the rate of depletion was only slight. At the composite level, backlogs of work increased for the fifth month in a row, albeit marginally.

Average input costs increased across both the manufacturing and service sectors in December. That said, the overall rate of inflation was modest and the weakest in five months.

In December manufacturers cut their factory gate prices for the first time since July, albeit fractionally. In contrast, service providers raised their selling prices for the fifth successive month. As a result, average tariffs increased slightly at the composite level.

Latest data signalled that Chinese service providers were optimistic towards the 12-month business outlook in December, with 26% of panellists expecting output to increase. However, the degree of positive sentiment remained historically weak, despite improving from the
previous month.