QUICK READS

Posted on September 2, 2010 by Denis Ouellet

Sweden Raises Interest Rates The Riksbank raised its key rate to 0.75% from 0.5% and left its forecast unchanged.

U.K. Home Prices Fall Mortgage lender Nationwide Building Society said house prices fell for the second straight month in August but that overall price declines are likely to be "relatively modest."

Pakistan’s Growth to Tumble Pakistani Prime Minister Yousuf Raza Gilani gave the most detailed assessment yet of the damage wrought by flooding over the past month, saying the country had suffered economic losses of $43 billion from the deluge.

Ferrari 458 Italia Supercar Is Recalled A wheel-arch heat shield is too close to an exhaust pipe and causes an adhesive to burst into flame, a Ferrari spokesman said.
Outsourcers warn US producing too few engineers IT groups forced to recruit foreign workers despite visa costs

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EUROZONE GDP RISES 1% IN Q2, OUTPACING THE US

Posted on September 2, 2010 by Denis Ouellet

The strongest rise in consumer spending since the start of the financial crisis in 2007 helped drive the euro zone’s strong growth in the second quarter, indicating that the currency area’s recovery is less vulnerable to expected slowdowns in other parts of the global economy than feared.

In its second estimate of gross domestic product during the three months from April to June, Eurostat confirmed Thursday that the economy grew by 1% compared to the first quarter.

However, it raised its estimate for the pace of the expansion relative to the second quarter of 2009 to 1.9% from 1.7% previously. That reflected an upward revision in Eurostat’s estimate of first-quarter growth to 0.3% from 0.2%. (…)

The euro zone’s expansion in the second quarter was the fastest in four years, and the currency area outstripped the U.S. and Japan, where growth was recorded at 0.4% and 0.1% respectively.

The composition of growth indicates that the expansion may be more sustainable, and less vulnerable to weaker demand in other parts of the global economy, than many economists had thought. Exports accounted for a relatively small share of the 1% expansion, just 0.1 of a percentage point.

Instead, growth was largely driven by domestic demand. Consumer spending rose by 0.5% from the first quarter, the largest gain since the 0.7% increase recorded in the third quarter of 2007, when the financial crisis began.

Investment surged by 1.8%, more than reversing a 0.4% contraction in the first quarter, and indicating that business confidence is recovering after a prolonged slump.(…)

In the wider European Union, GDP rose by 1.0% from the first quarter, and 1.9% from the second quarter of 2009.

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Full WSJ article. Table from Eurostat.

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US AUTO SALES DROP 5% JULY TO AUGUST

Posted on September 2, 2010 by Denis Ouellet

Auto makers sold 997,968 light vehicles in August, down from 1,262,197 a year earlier, according to Autodata Corp. The annualized selling pace for the month was 11.47 million vehicles, in line with the pace of the last five months but down from the 14.17 million level hit in August 2009, Autodata said. Earlier this decade the industry sold about 16 million cars a year. Compared with August 2009, when the clunkers program was in full swing, sales cratered 21%.

One of the strongest parts of the market has been demand for full-size pickups. Sales of its Chevrolet Silverado increased 5% YoY in August. Sales of Ford’s F-series models rose about 5%.

Over all, nearly as many light trucks were sold as passenger cars during August!  For the month, 50.3% of all vehicles sold were cars, compared with 49.7% for trucks, S.U.V.’s and vans.

High end buyers were active in August as some luxury brands significantly outperformed the overall market during the month. Mercedes-Benz increased 13%, Audi was up 14%, and Porsche increased 33%.

FT’s Lex column is not very upbeat:

(…) But it is impossible to get a truly clean comparison since sparse dealer inventories and stingy incentives discouraged some non-clunkers buyers last August. Then there is the issue of fleet sales, without which GM’s sales would be flat and Chrysler’s down by a fifth this year. These not only obscure the relative performance of manufacturers but smooth volatile retail demand artificially. For example, the significant post-clunkers hangover last September was even worse at dealerships, where sales fell 43 per cent in one month.

All the more reason to focus on absolute levels, not the rate of change. High fleet sales, generous incentives and cheap money should have pushed overall SAAR to 12m by now. A retooled Detroit can survive at the current pace but may only thrive at about 12.5m, the rate at which scrappage is offset. Optimists who conclude that every passing month with subpar sales represents pent-up demand may be ignoring the possibility that US car sales will be stuck in a lower gear for the foreseeable future.

Charts from the NYT

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Posted in ***CONSUMER WATCH, ***RECOVERY WATCH, ECONOMY, US economy, automobiles | Leave a comment

US HOUSING SECTOR SHOWING NO POSITIVE SIGN YET

Posted on September 1, 2010 by Denis Ouellet

(…)  "The sharp decline in MBA’s Purchase Application index in May had provided a clear leading indicator of the Thumbnail image for home-loan-mortgage-lending-keyimage.jpgdrops in new and existing home sales that were reported for June and July.  Despite the slight increase in purchase activity in the past week, the continued low level of purchase applications indicates we are unlikely to see an increase in new home sales reported for August or existing home sales reported for September."

The four week moving average for the seasonally adjusted Market Index is up 5.2 percent.  The four week moving average is down 0.2 percent for the seasonally adjusted Purchase Index, while this average is up 6.3 percent for the Refinance Index.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.43 percent from 4.55 percent, with points increasing to 1.34 from 0.89 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The contract rate is a new low for this survey. The effective rate also decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.88 percent from 3.91 percent, with points decreasing to 1.45 from 1.64 (including the origination fee) for 80 percent LTV loans. The contract rate is a new low for this survey. The effective rate also decreased from last week. The average contract interest rate for one-year ARMs increased to 6.95 percent from 6.84 percent, with points increasing to 0.23 from 0.22 (including the origination fee) for 80 percent LTV loans.

Full Real Estate Channel post

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MARTIN WOLF: OBAMA IS TOO CAUTIOUS

Posted on September 1, 2010 by Denis Ouellet

(…) In consequence, the administration has lost credibility with the public and the chances of a renewed fiscal expansion have disappeared. With the Federal Reserve cautious, too, the likelihood of a lengthy period of weak growth and heavy joblessness is high. So, too, are the chances of domestic and global political friction. (…)

A fascinating perspective does come, however, from comparisons with what happened in other advanced countries. The recession in US output (and so demand) has been relatively small, but the decline in employment has been exceptionally large, as a result of an extraordinary surge in US productivity. (…)

Since the US was the epicentre of the financial crisis, the relatively small decline in output is remarkable. Moreover, since fiscal and monetary stimuli bear directly on demand and output, not jobs, this is a policy success. At the same time, the enthusiasm with which US managers laid off workers is also extraordinary. No doubt, some of this is due to the collapse in construction. But some of it must be due to the ease with which US companies can lay off workers and the incentives for managers to maintain profits in a downturn at the expense of jobs.

Debate is emerging on how much of the surge in unemployment is structural. My answer, from European experience, is that one way to ensure it becomes structural is to let it linger. In the short run, the simplest way to prevent that from happening is to expand demand and so output. Since there is huge slack in the labour market, not the slightest threat of inflation – far more a risk of deflation – and no constraint from bond or foreign exchange markets on further monetary and fiscal stimulus, these are the policies that have to be pursued. Yet, alas, the Fed seems to have decided to fall asleep and the administration has lost the initiative.

So what is going to happen? I assume that, after the midterm elections, resurgent Republicans will offer new tax cuts and ignore the fiscal deficits. They will pretend that this has nothing to do with any reviled stimulus, though it is much the same thing – increasing fiscal deficits, thereby offsetting private frugality. That would put the administration on the spot. It would have to choose between vetoing the tax cuts and accepting them, so allowing the Republicans to get the credit for their “yacht and mansion-led” recovery. Any recovery is better than none. But it could have been much better than this. Those who were cautious when they should have been bold will pay a big price.

Full Ft op-ed

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BERNANKE’S SLINGSHOT

Posted on September 1, 2010 by Denis Ouellet

Just before Ben Bernanke’s speech in Jackson Hole last week, Martin Feldstein gave a Bloomberg interview in which the famed economist plainly said that there was not much the Fed could do …

Alan Blinder is more direct (via David Rosenberg):

“The Fed has run out of the strong tools, and is turning to weak ones. When you’re fighting in a foxhole and you’ve used up the machine guns and hand grenades, then you pull out the sword and start throwing rocks.”

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QUICK READS

Posted on September 1, 2010 by Denis Ouellet

Currency Trading Hits $4 Trillion a Day Currency trading volume around the world has hit $4 trillion a day, fueled by investors in the wealthiest nations looking to diversify beyond their home markets in a time of economic turmoil.

[CHINAHERD090110]

Whirlpool to Invest in U.S. Plants Whirlpool’s plans for a new Tennessee plant highlight a shift by export-driven U.S. manufacturers away from low-cost locales overseas to highly automated and consolidated U.S. operations.

Pakistan’s Growth to Tumble Pakistani Prime Minister Gilani said the floods will cause economic growth to drop 2 percentage points and lead to ‘massive’ job losses.

Australia GDP Beats Estimates Australia’s economy grew at a faster-than-expected pace in the second quarter of 2010, buoyed by surging investment, government spending and solid export growth.

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GERMAN RETAIL SALES DECLINE IN JULY

Posted on September 1, 2010 by Denis Ouellet

(…) The Federal Statistics Office said that, adjusted for inflation and seasonal effects, sales fell by 0.3% from June, and were up 0.8% from a year earlier. That is the second successive monthly decline, and contrasts with a forecast of a 0.5% rise from analysts polled ahead of time. The decline appeared to be caused in large part by weak sales of food and drink, which were down 0.4% from a year earlier. Nonfood sales rose 1.9% in the same time frame.

The monthly decline was also due to a correction in television sales, after a surge in advance of the soccer World Cup that started in June, said Alexander Koch, an analyst with Unicredit in Munich. By contrast, he said that car sales, which aren’t included in the data, were up 1.5% from June, showing "further signs of stabilization" after a sharp fall when the government ended its "cash-for-clunkers" program last year.

Over the first seven months of the year, sales were up 0.9% in real terms from the corresponding period in 2009.

Kai Falk, head of the German Retail Association, HDE, said that July "hadn’t been a bad month" and said that the improving trend in the labor market would continue to support confidence in the sector. The monthly business-confidence survey compiled by research institute Ifo in August had shown confidence among retailers was at its highest level in over a year.(…)

Full WSJ article

Markit released its August retail PMI for Germany which showed continued deterioration.

August data signalled a modest decline in month-on-month sales, reversing the solid upward trend registered in image both June and July. At 48.4, down sharply from 57.2 in the previous month, the seasonally adjusted Retail PMI was below the 50.0 no-change value for the first time since May. The latest reading was the lowest for four months and slightly below the long-run series average (49.1). Anecdotal evidence suggested that less favourable weather conditions and reduced consumer footfall had negative impacts on like-for-like sales in August. Some retailers also noted that the end of the football World Cup had contributed to a decline in household spending.
…but sales were higher than one year earlier

Retailers in Germany indicated that actual sales fell short of their initial plans in August. This was the first such instance in three months, which companies generally attributed to less favourable than anticipated weather conditions.

Although retailers were downbeat about their actual sales in August, latest data pointed to a surge in optimism about the prospects for sales in September. The degree of positive sentiment about the outlook for sales in one month’s time was the most marked since April 2008. Almost one-quarter of survey respondents anticipate sales to beat their initial forecasts. A number of retailers linked their optimism to improving conditions in the domestic economy. New marketing and promotions were also cited as factors likely to boost sales in September.

Full Markit release

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JOB REPORTS POINT TO WEAK US JOB GROWTH IN AUGUST

Posted on September 1, 2010 by Denis Ouellet

(…) Private-sector jobs in the U.S. fell by 10,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. (…)

The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics’ nonfarm payroll data, to be released Friday, include government workers.(…)

The latest ADP report showed large businesses with 500 employees or more added 1,000 new employees. But medium-size businesses cut 5,000 workers in August and small businesses that employ fewer than 50 workers dropped payrolls by 6,000.

Service-sector jobs added 30,000 last month, while factory jobs fell by 6,000.

Other job reports released Wednesday were mixed.

Employers announced job cuts totalling 34,768 in August, according to global outplacement firm Challenger, Gray & Christmas. That was down 17% from the July number and the lowest monthly total since June 2000.

Also on Wednesday, TrimTabs Investment Research said that because of layoffs within the Census Bureau, the economy lost about 65,000 jobs in August with private-sector hiring adding 70,000.(…)  TrimTabs bases its employment estimates on an analysis of daily income tax deposits to the U.S. Treasury from all salaried employees.

Full WSJ article

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EUROZONE PMI EASES TO 55.1 IN AUGUST

Posted on September 1, 2010 by Denis Ouellet

The Markit Final Eurozone Manufacturing PMI™ fell to a six-month low of 55.1 in August, down from 56.7 in July, but above the earlier flash estimate of 55.0. Although the PMI signalled a slight loss of growth momentum, the rate of expansion remained robust and faster than the survey average. Business conditions in the manufacturing sector have now improved in each of the past eleven months.

Manufacturing production and new orders both rose for the thirteenth successive month in August. However, there were noticeable slowdowns in growth of both variables since July, with the increase in total new orders the smallest in the year-to-date.

The big-two of Germany and France – along with Austria – recorded by far the fastest increases in output. Rates of expansion were comparatively modest in Italy, Spain and the Netherlands, while the recession in Greece extended into an eleventh consecutive month. The rate of contraction in Greece accelerated sharply since July, following a similar quickening in the pace of reduction in new orders. Growth of output accelerated slightly in France and Spain, but decelerated in Germany, Italy, the Netherlands, Austria and Ireland.

Producers of consumer, intermediate and investment goods all reported slower rates of increase in both output and new orders in August. The investment goods sector recorded the strongest expansion overall, mainly reflecting robust growth at German capital goods producers.
New export orders rose for the thirteenth month running in August. However, the rate of increase eased for the fifth month running to the weakest since January. All of the nations covered reported higher levels of new export orders, including a slight rise in Greece for the first time since last September.

Eurozone manufacturing employment increased for the fourth successive month in August. Although the rate of jobs growth was again only moderate, it was in line with July’s 26-month high and slightly sharper than the earlier flash estimate. (…)

There were signs that Eurozone manufacturers’ capacity was under pressure in August, as companies reported settling sales in part through the depletion of existing stocks of finished goods whilst registering another increase in backlogs of work. Stocks of purchases also fell during the latest survey period, despite a solid increase in purchasing activity.

Full Markit release

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UK PMI DECLINES IN AUGUST

Posted on September 1, 2010 by Denis Ouellet

August PMI data signalled a further slowdown in the rate of expansion of the UK manufacturing sector. The seasonally adjusted Markit/CIPS UK Manufacturing PMI™ – which is calculated from data on new orders,

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production, employment, supplier performance and stocks of purchases – fell to 54.3, from 56.9 in July, its lowest level since last November. However, the PMI remained above the neutral 50.0 mark for the eleventh successive month, consistent with ongoing recovery in the sector. Manufacturing production and incoming new orders both continued to grow in August.

The slowdown in production growth was centred on the consumer and intermediate goods sectors, as the rate of expansion at capital goods producers accelerated since July.
August data suggested that growth of UK manufacturing output may ease further in the coming months, as the cyclically-sensitive new orders-to-inventory ratio fell to a seventeen-month low.

Markit

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CHINA PMI RISES IN AUGUST

Posted on September 1, 2010 by Denis Ouellet

The Purchasing Managers Index (PMI) of China’s manufacturing sector rose to 51.7 percent in August, up 0.5 percentage points from July, the China Federation of Logistics and Purchasing (CFLP) said Wednesday.

August’s figure marked an end to three consecutive months of decline, and it was the 18th straight month that the index was above 50 percent.

Among the 11 sub-indices, six, including production, new orders and input prices, increased in August, according to the CFLP.

(…) But Zhang also warned that a sharp increase in input prices would raise pressures on enterprises to manage costs.

According to the CFLP, the input prices index was up 10.1 percentage points in August from July.

China's PMI of manufacturing sector rises to 51.7% in Aug

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