Two strong reports: first the ISM (charts from Bespoke Investment)

The PMI™ registered 57.3 percent, an increase of 0.9 percentage point from October’s reading of 56.4 percent. The PMI™ has increased progressively each month since June, with November’s reading reflecting the highest PMI™ in 2013.

The New Orders Index increased in November by 3 percentage points to 63.6 percent, and the Production Index increased by 2 percentage points to 62.8 percent. The Employment Index registered 56.5 percent, an increase of 3.3 percentage points compared to October’s reading of 53.2 percent. This reflects the highest reading since April 2012 when the Employment Index registered 56.8 percent. With 15 of 18 manufacturing industries reporting growth in November relative to October, the positive growth trend characterizing the second half of 2013 is continuing.

“The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through November (53.7 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for November (57.3 percent) is annualized, it corresponds to a 4.7 percent increase in real GDP annually.”


New Orders

ISM’s New Orders Index registered 63.6 percent in November, an increase of 3 percentage points when compared to the October reading of 60.6 percent. This represents growth in new orders for the sixth consecutive month, at a faster rate than in October.

image image

ISM’s New Export Orders Index registered 59.5 percent in November, which is 2.5 percentage points higher than the 57 percent reported in October. November’s reading reflects growth in the level of exports relative to October, and is the highest reading since February 2012 when the index also registered 59.5 percent. This month’s reading also represents the 12th consecutive month of growth in new export orders.




Markit’s PMI is a little more subdued:

The final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.7 in November, signalling the strongest improvement in manufacturing business conditions since January. The headline index was up sharply from 51.8 in October (a one-year low) and above the earlier flash estimate of 54.3. The three-month average of the PMI – an indication of underlying trends – was 53.1 and broadly in line with the respective average for 2013 to date.


Manufacturing production in the U.S. increased at the sharpest pace for 20 months in November. The marked rate of output growth was much faster than the slight expansion seen in October, which was partly a result of disruption caused by the government shutdown. All three market groups (consumer, intermediate and investment) saw improved output trends over the month, led by producers of consumer goods.

Firms linked the marked rise in output to a stronger increase in new work intakes. Notably, new order growth was strong and accelerated to one of the fastest rates for over one-and-a-half years. A second consecutive monthly rise in new export orders contributed to the overall increase in total new work. The latest rise in new export orders was above the average for 2013 to date, though modest.


Employment in the U.S. manufacturing sector increased for the fifth consecutive month in November. However, the rate of job creation slowed to a modest pace that was weaker than the average for 2013 so far. (…)

Firms passed on greater costs to clients by raising their selling prices. The latest rise in output charges was solid and the fastest for over two years.

Output growth at large manufacturers (more than 500 employees) rose at a marked and accelerated pace in November. This generally reflected the sharpest increase in new orders for almost three years.
Small manufacturers (less than 100 employees) similarly saw a strong increase in production. The rate of growth was the fastest since February 2011.




The recovery in the eurozone manufacturing sector accelerated again in November. Although the pace of expansion remained modest overall, the real positives were that growth extended into a fifth successive month with the rate of increase hitting a near two-and-half year high.

The seasonally adjusted Markit Eurozone Manufacturing PMI® posted 51.6 in November, up from 51.3 in October and the earlier flash estimate
of 51.5. The headline PMI is currently at its highest level since June 2011. The average reading so far in the final quarter (51.5) also places the sector on course to register its best quarterly performance since the second quarter of 2011.


Levels of manufacturing production, new orders and new export business all rose for the fifth consecutive month. The rates of growth in output and new work both accelerated slightly to the highest since August, while the pace of increase in non-domestic orders reached a two-and-a-half year record.

PMIs for Germany, Italy, the Netherlands, Austria and Ireland all signalled expansion in November, with the rates of increase accelerating in all bar Ireland. These five nations benefited from concurrent growth of output, new orders and improved inflows of new export business.

There was also relatively positive news for Greece, where manufacturing output rose for the first time in over four years and new orders stabilised. France, meanwhile, slipped to the bottom of the PMI league table and was the only nation to report faster declines in both output and new orders. Spain fell back into contraction, as its weak domestic market offset improved inflows of new export business.

Backlogs of work at eurozone manufacturers expanded for the third time in the past four months in November. Although the pace of increase in work-in-hand was only marginal, it was still the steepest since May 2011. Taken together with the gain in new orders received, this indicated that overall order books were also improving – mainly in nations such as Germany, the Netherlands and Austria.

Rising levels of production and fuller order books failed to alter the trend in employment, however, with job cuts reported for the twenty-second month running. Germany, France and Spain all reported faster rates of decline. Further cuts were also seen in Greece (albeit the least severe reduction in almost four years), while Austria registered a decrease following a slight increase in October.

Average purchase prices rose for the third successive month in November, and at the fastest pace since October 2012. However, the rate of increase remained moderate compared with its long-run survey average. Input cost inflation was steepest in France and Italy. Adding to the evidence of rising input price inflation was the trend in average supplier lead times, which lengthened to the greatest extent in nearly two-and-a-half years.

The pass-through of higher input prices at the factory gate remained minor, however, as output prices rose only marginally again. The sharpest increases in output charges were centred on the stronger-performing manufacturing sectors – Germany, the Netherlands, Austria and Ireland.

Pointing up While exports are improving in Italy and Spain, they are falling in France.

Lower output reflected a further drop in new orders received by French manufacturers. The latest fall in new work was the most marked in six months. Data suggested weak demand both domestically and abroad; new export orders were down for the first time in three months.

Outstanding business fell for the fourth month running, with the rate of decline accelerating to the fastest since May.




This is important, the U.S. economy being highly services dependant. October’s 49.3 print was clearly an aberration. Services have been running at 57 on the PMI scale for 6 months with strong and sustained new biz and now a very busy backlog. Services companies appear to be able to raise prices at a faster clip.

The Markit Flash U.S. Services PMI™ Business Activity Index posted 57.1 in November, signalling a strong monthly increase in services output. This was up sharply from 49.3 in October (a figure indicative of a slight reduction in business activity), and suggested that service sector output bounced back after having been previously affected by the disruption caused by the government shutdown.


The ‘flash’ PMI reading, which is based on approximately 85% of usual monthly replies, was above the series average of 55.5 and one of the highest for over one-and-a-half years.

The volume of new business received by service providers rose sharply in November, with a number of surveyed companies commenting on new contract wins. Notably, the rate of growth accelerated to the fastest since March 2012, and was much stronger than that seen at the beginning of the year.


Concurrently, outstanding business at service providers rose at a solid pace, which more than reversed a reduction in October. In fact, the rate of backlog accumulation was the fastest since data collection began in October 2009.

Employment growth eased to a three-month low in November. Nevertheless, the rate of job creation was solid and broadly in line with the average for 2013 so far.

imageInput costs faced by service providers continued to increase in November, with respondents particularly mentioning higher food and fuel prices. However, the rate of inflation eased for the fourth month running and was the weakest since June.

Firms passed on increased costs to clients by raising their selling prices for the fifth consecutive month. The latest increase in prices charged was the strongest in the 50-month series history, but slightly weaker than that for input prices.



NEW$ & VIEW$ (22 NOVEMBER 2013)

Philly Fed Weaker Than Expected

(…)  the Philly Fed Manufacturing report for November came in at a level of 6.5, which was down from last month’s reading of 19.8 and weaker than consensus expectations for a level of 11.9.  (…) every component declined in this month’s report. 

New orders remained high enough……but unfilled orders turned negative……and inventories jumped……and the workweek collapsed…

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through November. The ISM and total Fed surveys are through October. (CalculatedRisk)



To conclude, Confused smile.

Brent Hits One-Month High; Iran in Focus

Brent crude for January delivery was up 28 cents at $110.37 a barrel on ICE Futures Europe. U.S. crude-oil futures were down 32 cents at $95.12 a barrel on the New York Mercantile Exchange.

Iran remained a major focus of attention. Negotiations continue Friday between the Islamic republic and six states that have the power to revoke sanctions on it related to its enrichment of uranium.

If Iran’s crude flows back into the market next year there could be negative price repercussions for the benchmark, Brent. But JBC Energy Markets noted that not every country stopped importing Iranian crude over the past 18 months.

China was among those who continued but it imported in much less last month.

“Chinese imports of Iranian crude were cut quite drastically in October – falling by 47% month-on-month,” they wrote in a note to clients.

The import reduction could be seen as a move to secure more favorable terms for next year’s prices, “something we have seen in previous years,” said JBC. (…)

Target Shoppers Put Less in Their Carts

The retailer said shoppers put fewer items in their shopping cart for the first time in at least six quarters.

(…) Target expects sales at stores open at least a year to be flat for the current quarter. This comes after it said it lost customers for the fourth straight quarter, ringing up 1.3% fewer transactions in its latest quarter. Shoppers spent more per transaction as they selected higher priced items like electronics, but they put fewer items in their shopping cart for the first time in four years, a sign that they are financially constrained.

Some Target customers say they are reluctant to visit for fear they will be tempted to spend too much, according to Kathee Tesija, executive vice president of merchandising, a phenomenon that Target first saw pop up during the recent recession.

Wal-Mart earlier this month cut its full-year profit forecast for a second time this year, predicting flat sales. Best Buy said this week its margins in the fourth quarter would take a hit because it will match discounts.

U.S. Wholesale Prices Fall 0.2%

The producer-price index, which measures how much companies pay for everything from food to computers, declined 0.2% last month from September.

The producer-price index, which measures how much companies pay for everything from food to computers, declined 0.2% last month from September, the Labor Department said Thursday. That was largely due to falling energy costs. Core prices, which exclude the volatile food and energy components, rose 0.2%, in line with the soft readings in recent months.

ECB’s Praet warns of deflationary pressures in euro zone

(…) Praet, who sits on the ECB’s six-strong Executive Board, said the financial crisis had saddled the euro zone with a debt burden unique in Europe’s post-war history because it has created a more deflationary environment.

“This is a very different context for the correction of expectations (about income), which is more of a debt overhang,” he told a conference at the Bank of France.

“It has more signs of a balance-sheet recession, which is a priori more of a deflationary environment than what we had in the 1960s,” added Praet, who is in charge of the ECB’s economics portfolio. (…)

 German Business Confidence Increases as Recovery on Track

German business confidence surged to the highest level in more than 1 1/2 years, signaling that the recovery in Europe’s largest economy remains on track even after growth slowed in the third quarter.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 109.3 in November from 107.4 in October. That’s the highest since April last year and exceeds all 43 economist forecasts in a Bloomberg News survey. The median was for an increase to 107.7.

Business hopes up for global economy
FT/Economist barometer shows increased optimism among executives

Global business leaders are increasingly optimistic that economic conditions will improve over the coming months, according to the FT/Economist Global Business Barometer.

In the latest results, 41 per cent of the executives surveyed said they thought the global economy would get “better” or “much better” over the next six months, with 45 per cent saying they expected it to remain the same.

This is a big jump from three months earlier, when only 27 per cent expected the global economy to improve, and 48 per cent expected it to say the same.

However, the results should be read with a degree of caution, as this quarterly edition of the survey gave the respondents additional positive options (“much better” and “better”) rather than simply the “better” of previous surveys.

Out of more than 1,800 business people polled, 53 per cent said their companies were looking to expand significantly in two to five countries over the next six months. (…)


Yesterday, I posted on Barclays’ analysis

that the reading on “bearishness” has a better contrarian relationship with subsequent forward returns. Currently only 16% of respondents describe themselves as “bears”. Since the beginning of 2009, when there have been less than 18% bears, the market has been lower six months later on each occasion. Given that the period since 2009 has been a strong bull market, sentiment extremes have provided a good “call” on the market.

Well, the highly volatile AAII survey now shows 29.5% bearishness while bullish sentiment declined sharply. Go figure!



At 54.3, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™), which is based on approximately 85% of usual monthly survey replies, rose to an eight-month high in November. This was up from a one-year low of 51.8 in October. Meanwhile, the three-month average of the PMI, which gives an indication of the underlying trend, was at 52.9, consistent with an ongoing modest improvement in manufacturing business conditions.


After having increased only marginally in October, dampened by disruptions arising from the government shutdown, manufacturing production rose at the strongest pace for nine months during November. In the past three months, the average rate of output growth similarly picked up to a solid pace.

The volume of new orders received by manufacturers rose further during November. The rate of growth was solid and broadly in line with the average for the year to date.

Both the levels of domestic and export orders increased over the month. This was the second consecutive monthly rise in new export work, with the rate of growth the fastest since December 2012, though still only moderate.


Employment in the U.S. manufacturing sector increased in November, with firms often citing higher order requirements and recent business expansions. Nonetheless, the rate of job creation was only modest and the second-weakest in the current five-month sequence of rising employment.

Input costs continued to rise in November, especially for metals. Overall, the rate of inflation was the fastest since February. Higher costs were generally passed on to clients, with firms raising their selling prices for the fifteenth month in a row. Notably, the latest increase in charges was the joint-strongest recorded by the survey in the past two years.

Reflective of higher new order volumes, the quantity of inputs bought by manufacturers increased in November. The solid rise in purchasing activity more than reversed a reduction in October. Meanwhile, input inventories were depleted further, albeit at a slower rate. Concurrently, suppliers’ lead times continued to lengthen. The latest increase in delivery times was the strongest since July 2011, suggesting a build-up of capacity constraints in the manufacturing supply chain.




Eurozone manufacturing looks better but services are weak. Beware of Eurozone aggregates, however. This is turning into a 3-speed economic region: a stronger North, a weak South, and France…

At 51.5, down from 51.9 in October, the flash estimate of the Markit Eurozone PMI® Composite Output Index remained above the 50.0 no-change level for a fifth successive month in November, but signalled a modest easing in the rate of expansion for the second month running.
Output growth in manufacturing stabilised at a robust rate and remained stronger than service sector expansion, which eased to the weakest since August.


Trends were also varied by country. The composite PMI covering both manufacturing and services in Germany rose to its highest since January, signalling increasingly robust growth and a seventh successive monthly expansion.

In contrast, the comparable index for France fell to its lowest since June, signalling a renewed decline after just two months of fractional growth. Elsewhere across the region, output rose for the fourth month in a row, but the rate of increase was the weakest seen over that period.


Eurozone private sector new orders rose for the fourth consecutive month, with the rate of increase unchanged on the very modest pace seen in October. Growth of manufacturing new orders accelerated to the strongest since August, fuelled by the largest rise in new export orders since May 2011. However, new business expansion in the service sector slowed for the second month in a row.


Private sector employment in the eurozone fell for the twenty-third consecutive month, with the rate of job losses accelerating marginally for the second successive month. Manufacturers reported the smallest drop in payroll numbers since July, while employment in the services sector fell at the strongest rate since August.

By country, staffing numbers rose for the third time in five months in Germany, but fell at the steepest rate for six months in France. Elsewhere, the rate of job shedding eased to the second-lowest seen for over two years.

The volume of outstanding business fell marginally again, as a steepening rate of decline in services was partly offset by the largest rise in manufacturing backlogs since May 2011.

Input costs rose for the sixth month running, rising at the fastest rate since September of last year. The strengthening in inflation was reflected in both manufacturing and services.

Output prices meanwhile continued to fall, dropping to the greatest extent for three months. Prices charged for goods showed the steepest monthly increase since August 2011, but charges levied for services showed the strongest fall for four months.


Here’s what Markit wrote on France:

The Markit Flash France Composite Output Index posted 48.5, following two successive months in which the index registered 50.5. Lower output was signalled by companies in both the services and manufacturing sectors.

Service providers indicated a drop in activity for the first time in three months. Although modest, the rate of contraction was the sharpest since July. Manufacturers meanwhile recorded a fall in production for the fourth month running, and the most marked decline since May.

November data pointed to a second successive monthly decrease in new business placed with French private sector firms. (…) Whereas service providers noted only a marginal fall in new business during the latest survey period, manufacturers signalled the most marked drop for seven months, with export sales decreasing for the first time since August.

(…) Outstanding business fell for the second consecutive month and at the sharpest rate since May. Service providers and manufacturers both indicated faster declines in unfinished work.

(…) The rate of job shedding was the fastest since May. Staffing levels were down in both the services and manufacturing sectors.

(…) output prices were reduced further in November; the latest fall was the sharpest in three months. Service providers signalled a solid decrease in charges, whereas manufacturers noted broadly no change.

Contrast that with Germany:

Overall levels of new work received in the German private sector increased at the most marked pace for almost two-and-a-half years in November. In the manufacturing sector, latest data pointed to the steepest rise in new export work since February, but survey respondents continued to cite weak demand conditions within the euro area. Across the service sector, new business has now risen for five months in a row, which is the longest expansionary period since the upturn in 2010/11. A number of service providers noted that improvements across the wider domestic economy had encouraged clients to commit to new projects.

Weak demand within the euro area. That is France and Italy.



The U.S. manufacturing sector grew at its slowest rate for a year in October, according to the final Markit U.S. Manufacturing Purchasing
Managers’ Index™ (PMI™). At 51.8, down from 52.8 in September, but above the earlier flash estimate of 51.1, the PMI suggested that the rate of
expansion was only modest.


A sharp easing in the rate of output growth was the main factor behind the lower PMI reading compared with September. Production rose imagemarginally in October – after the earlier flash reading suggested a
slight reduction – with the rate of growth the joint weakest since September 2009.

Manufacturers linked the slight increase in output primarily to a weaker rise in new orders. Total incoming new work rose modestly and at the
slowest pace in six months in October. Panellists commented on greater client demand in both the domestic and international markets. Nevertheless, a marginal increase in new export orders merely reversed a decline in September.


Reflective of the weak trend for new orders, the quantity of inputs bought by manufacturing companies fell for the first time in almost three years
in October. This was accompanied by the sharpest depletion of stocks of purchases since September 2009. Concurrently, suppliers’ delivery times continued to lengthen, with the latest increase in lead times the greatest for a year-and-a-half.

Manufacturing employment in the U.S. rose for the fourth consecutive month in October. Overall, the rate of job creation accelerated to a moderate pace, but was nonetheless weaker than at the start of the

Input costs faced by manufacturers rose at a strong and accelerated pace in October. However, the rate of inflation remained weaker than the series average. Firms passed on greater costs to clients by raising their selling prices. The latest increase in output charges was the largest in 2013 to date.




The Markit Eurozone PMI® Composite Output Index fell from September’s 27-month high, according to the October flash estimate, but remained above the 50.0 no-change level for a fourth successive month.
At 51.5, down from 52.2 in September, the flash PMI signalled an ongoing modest upturn in business conditions at the start of the fourth quarter, at a rate broadly similar to the trend shown over the third quarter. The third quarter had seen the highest average PMI reading since the second quarter of 2011.


The expansion was broad-based across the region, though there were signs of moderation in the bloc’s two largest economies. Growth slowed to a three-month low in Germany, while France registered only a negligible expansion as its PMI dipped closer toward neutrality. The rest of the eurozone meanwhile reported modest growth of activity for the third month running, representing the first period of growth for these countries since early-2011.


New orders rose for the third consecutive month, but likewise showed an easing in the rate of increase to a weak pace.


The easing in growth of both output and new orders was driven by the service sector, where activity and new business both rose for the third consecutive month but at marginal rates. Manufacturing output growth, in contrast, accelerated slightly and new order growth was unchanged on September’s moderate pace.

The weakening order book growth trend led to a further drop in payrolls. Employment fell for the twenty-second consecutive month, with the rate of job losses strengthening slightly on September. Although employment rose marginally in France for the first time since February of last year, a modest decline was seen in Germany and a stronger rate of job shedding was recorded across the rest of the eurozone.

The volume of outstanding business fell marginally, suggesting current workforce numbers were, on average, sufficient to deal with workloads. This was despite a slight rise in manufacturing backlogs.

Input costs rose for the fifth month running and at the fastest rate since January, although inflation remained historically weak. Output prices continued to fall, but at the slowest rate since May of last year. Charges levied for services fell at the slowest rate for 17 months while manufacturers’ factory gate prices rose slightly for the second month in a row, showing the largest gain for just over one-and-a-half years.