In this edition we look at the PMI numbers for China, and the U.S., and review the results of the quarterly Tankan in Japan. We then look more closely at some of the other data points out of the U.S. last week; the Case-Shiller house price index, consumer confidence, and of course nonfarm payrolls.
1. China PMI
China showed further signs of slowing down following the moves by the authorities to prevent asset bubbles. The official CFLP index registered at 52.1, down both against consensus estimates (Reuters) 53.1, and the May figure of 53.9. The HSBC index (which surveys 400 businesses, and is more weighted to smaller/privately owned businesses than the CFLP index) confirmed the direction; down to 50.4 vs 52.7 in May. So these figures potentially point to a slowdown in the manufacturing sector, but will the other sectors of the Chinese economy offset the slowdown? Will rising wages help lift consumption? The next big regular data release is due on the 15th of July, and will provide a timely update.
2. Japan Tankan
Japan saw further tentative signs of improvement with the release of the quarterly Bank of Japan Tankan survey. The June quarter reading for large manufacturers broke into positive territory at 1 (consensus was -4), vs -14 in the March quarter, and much improved from the low of -58 in March 2009. Large non-manufacturing firms improved to -5 from -14; but smaller firms showed a slower improvement and are still negative (manufacturers -18, non-manufacturing -26), while the total index jumped to -15 from -24. The overall trend has been for a gradual improvement following the tremendous drop-off during the crisis as international trade fell off a cliff. The Japanese economy still faces the significant challenges of deflation and a large fiscal deficit/government debt problem, but at least some positive signs are emerging.
3. U.S. PMI
The U.S. manufacturing PMI came in well under consensus at 56.2 vs. an expected 59, and down sharply from 59.7 in May. The drop was notable in several key areas e.g. new orders down -7.2 to to 58.5, production down -5.2 to 61.4, and exports down -6 to 56. Though the index is still in expansionary territory, the drop is possibly cause for concern. But the most notable decrease was in the prices index, down 20.5 points to 57, with 18% (vs. 5%) reporting lower prices, 50% (vs 35%) reporting prices staying the same, and 32% (vs 60%) reporting higher prices. So on a net basis people are still seeing price rises (32%-18% = 14%). The prices drop is interesting from an inflation standpoint and a signaling standpoint; i.e. demand < supply.
4. US Housing and Confidence
Another figure to take a dive in June was U.S. consumer confidence, showing a reading of 52.9 vs consensus 63.3, and down sharply on the May reading of a downward revised 62.7, as consumers adjusted their views slightly on the back of a still tepid job market. House prices didn't really give too much respite either - April was skewed up due to stimulus measures. The 20-city composite index was up 0.4% month on month, and 4% year on year. This is still an area of vulnerability as the potential for further defaults rise given the tough conditions (as confirmed by the confidence numbers), and slow or no income growth puts a cap on demand. It's likely that further stimulus measure will be put in place to support the housing market.
5. U.S. Nonfarm Payrolls
And to cap off the week U.S. nonfarm payrolls did nothing to ease the pain of the consumer confidence and PMI numbers. Payrolls fell by -125k in June, vs. a revised gain of 433k in May. Digging below the census hiring distortion the private sector added 83k jobs, vs consensus for 105k, and previous 41k. So the real results are not too bad, the theme is basically further normalisation, and is consistent with other signs of a gradual rise in activity (note how the PMI fell, but it was still indicating expansion). The volatile unemployment rate metric also fell slightly to 9.5% from 9.7% in May. So how do you read this and the other U.S. data results? Basically the recovery is continuing, but remember - it was a serious crisis and a deep recession, so the recovery is going to be hard work.
So in the last week we saw the Chinese PMI fall further, and the U.S. PMI showing disappointing results; but with both indexes still in expansionary territory. We saw Japanese large manufacturers barely beat off pessimism enough to break into a reading of 1. But with much of the index still in negative territory.
Meanwhile, the rest of the U.S. data failed to give any real cause for comfort, confidence was down significantly, the housing market wasn't really doing anything, and headline jobs were lost, but with the private sector still adding a few jobs.
Overall, all of the data-points are consistent with a tough, gradual, and fragile economic recovery. They did not point to any gains in momentum, but they didn't really give any cause for panic either. The data continues to confirm that we've just dodged a bullet, faced with the worst financial crisis to date, and a deep and structural recession-- meaning it's going to be a long hard road to a full and meaningful economic recovery.
1. National Bureau of Statistics stats.gov.cn & CFLP chinawuliu.com.cn & Markit/HSBC markiteconomics.com
2. Economic and Social Research Institute (Japan) esri.cao.go.jp
3. Institute for Supply Management ism.ws
4. The Conference Board conference-board.org & Standard & Poor's standardandpoors.com
5. Bureau of Labour Statistics bls.gov
Disclosure: No positions