Economic Facts – 16th September 2019

General

Global Developments: This chart shows the types of assets that central banks hold.

Global Developments: Slowdowns in money supply appear to have a real effect. In fact, the downtrend in the yearly growth rate in the adjusted money supply (AMS) during 2002 to 2007 was responsible for the economic slump of 2008. An uptrend in the growth rate of AMS during 2008 to 2011 provided a support for the strengthening in economic activity until very recently. A visible decline in the annual growth rate in AMS since 2012 has set in motion an economic slump. This slump is likely to strengthen as time goes by.

 

America

The United States: Here we have the index of container shipping costs from China to LA ports. Here is a comment from Patrik Berglund (CEO of Xeneta).

The United States: The chart above shows the development of the short- and long-term market on Transpac Eastbound into LA ports. The spike between the two red boxes indicates the temporary effect of the tariffs/trade war as US importers stocked up their warehouses. What’s interesting though, is how the market has ‘normalized’ on the right red box vs. the left red box – it’s a 15-20% hike. If that level holds (or even rises), we’re talking about billions of dollars of increases that either US importers or consumers will need to absorb.

The United States: Views on foreign trade: Americans’ increasingly positive views of foreign trade. A strong majority of U.S. adults (75%) see foreign trade as an opportunity for U.S. economic growth through increased exports rather than a threat to the economy from imports (25%). Before last year, no more than 58% had held the positive view of trade.

The United States: This chart shows the cumulative cost of tariffs for US importers The Trump administration is accepting public comments through Sept. 20 on a proposed Oct. 1 tariff rate increase to 30% from the 25% duty already in place on $250 billion worth of Chinese imports.

The United States: These products include $50 billion worth of largely non-consumer goods, including machinery, electronic components including semiconductors and printed circuit boards, and chemicals. But a later $200 billion list of goods included many consumer goods and building products, including furniture, vacuum cleaners, lighting fixtures, plumbing fixtures, handbags, luggage and vinyl flooring.

The United States: Analysts are concerned about weak business investment. Here is Morgan Stanley’s CapEx plans index. Business investment contracted for the first time in more than three years and housing declined for a sixth straight quarter. Federal Reserve Chairman Jerome Powell early this month flagged the two sectors as areas of weakness in the economy. They are likely to provide additional cover for the Fed to cut interest rates.

The United States: there is still too much slack in employment to spur wage growthThe trends in prime-age vs. total labour force participation continue to diverge. Alternative measures of labour market tightness, such as the employment-to-population ratio for workers in their prime working age (25–54), still haven’t recovered to pre-recession levels. Other indicators, like the labour force participation rate, are more than 4% below the rate that was reached during the economic boom in the late 1990s.

The United States: This chart shows corporate profits as a percentage of the GDP. After all, if the share of GDP going to corporate profits is going down, somebody else’s share must be going up. It looks like the growing slice of the pie is going to workers:

US consumer credit change: American consumer credit for July in the US increased by the most since November 2017 as Americans used credit cards heavily. Federal Reserve numbers showed total credit swelling by $23.3 billion month-on-month, suggesting consumers feel confident about their financial situation. US consumer activity has been a bright spot for a while, which is key as they account for roughly 70% of economic activity.

US producer prices: The US producer price index (PPI) for August unexpectedly ticked up 0.1% month-on-month, above expectations for it to be unchanged from the prior month. An increase in the cost of services offset the largest drop in the price of goods in seven months. The increase followed a 0.2% advance in July.

 

 

Europe

Europe: GDP growth in the euro area and EU28 he eurozone economy remained mired in a fragile state of weak and unbalanced growth in August, according to the latest survey data. With price pressures also remaining subdued, the data add to the case for more stimulus from the ECB in September. The average reading so far for the third quarter indicate that GDP will rise by just 0.2%, assuming no substantial change in September. Official data available so far for the quarter suggest growth could be even weaker.

Europe: The August data showed that a fierce manufacturing downturn, fuelled by deteriorating exports and most intensely felt in Germany, continued to be offset by resilient growth in the service sector, the latter in turn propped up to a large extent by solid consumer spending in domestic markets.

Europe: With jobs growth waning to the slowest since early-2016 a deteriorating labour market looks set to be a key transmission channel in which the trade-led downturn infects the wider economy. A sharp drop in business optimism about the coming year in the service sector, down to the joint-lowest for six years, suggests that companies are already braced for tougher times ahead.

Europe: The surveys also continued to signal weak price pressures. Although input cost inflation rose, the rate of increase remained among the weakest recorded over the past three years and well down on that seen at the start of the year. Similarly, average selling prices for goods and services rose only modestly, recording one of the smallest gains since late-2016, as firms reportedly often competed on price to win new sales.

Eurozone: Renewed stimulus from the ECB is therefore expected as the central bank seeks to stem the spreading malaise and revive demand. The minutes from the ECB’s July meeting showed there was a wide consensus of the need for a highly accommodative monetary policy stance for a prolonged period of time and there was broad agreement to adjust the forward guidance on policy rates by reintroducing an easing bias and to initiate preparatory work looking at options for new asset purchases. Moreover, the meeting noted that experience had shown that a policy package – such as a combination of rate cuts and asset purchases – was more effective than a sequence of selective actions.

 

Eurozone: Doves dominate the ECB’s Governing Council and are expected to deliver a “bazooka” stimulus package this month

 

 

 

China

China producer prices change: China’s producer price index (PPI), a gauge reflecting how much factories charge for goods, fell 0.8% year-on-year in August, marking the biggest fall in three years. This reflects the weaker position Chinese factories find themselves in after the prolonged trade conflict. Other data we have seen from the factory sector in 2019 has indicated it has been struggling as well, along with the manufacturing sector in most major economies.

China: Goldman’s policy proxy index suggests that Beijing’s latest stimulus program has been more moderate than in 2015/16.

China: This chart shows the trend in special local government bond (SLGBs) issuance News, that China’s regulators have pre-approved the issuance of part of next year’s quota. For special local government bonds has triggered speculation about the government’s next move, to stabilise economic growth.

China: Only a small portion of China’s special local government bonds has been invested in infrastructure projects. Instead, local governments used more than 60% of all #SLGBs issued to fund land reserves and shanty town renewal projects in H1 2019.

China: Is there more downside for the yuan (upside for the US dollar) as US tariffs ramp up? PBOC governor Yi Gang played down the importance of keeping the yuan above 7 to the US dollar earlier this year. Although Beijing has not allowed the yuan to break the barrier recently despite several events, including the strong capital flight witnessed in 2016 that followed the stock market meltdown in 2015.

China: China eased its monetary policy by cutting the reserve requirement ratio (RRR) and freeing up additional bank liquidity. China’s central bank announced on Friday that it will cut the required reserve ratio for all commercial banks. Freeing up long-term funding of around 900 billion yuan (US$126 billion) that banks can use to increase lending and support government efforts to shore up the real economy.

 

Japan

Japan GDP growth (QoQ): Japanese economy growing less than initially estimated in the second quarter.

Japan: After being earlier estimated to have grown 0.4% quarter-on-quarter in 2Q19, final data revised the figure downward to 0.3%, slowing from the 0.5% pace in 1Q19. The annualised pace decreased from 2.2% in 1Q19 to 1.3% in the second quarter.

Japan household spending: Householder spending in July up just 0.8% year-on-year, slowing from the 2.7% pace in June and below expectations for it to increase by 1.1%. Positively it was the eighth consecutive annual increase, even as it eased.

 

 

Australia

Australia: Australia a record trade surplus for Australia in July, which came in at $7.291 billion. This was $284 million ahead of that in June, and even as iron ore prices have weakened substantially from their peaks. The export sector is doing well and will be helped further by any resolution on trade. This is also while there are several domestic tailwinds coming through.

Australia: The weakest profitability result since 2013 is not a good sign for the Australia’s labour markets. The latest Australian corporate earnings season has been one of the weakest in years. Most ASX-listed companies report their full-year performance in August and the message was clear that they are fighting a battle of two fronts – sluggish economic conditions at home and an intensifying trade war between the United States and China abroad.

 

Australia: Why are consumers so negative? Weaker economic growth isn’t helping, with Australia’s annual gross domestic product (GDP) rate at less than 2 per cent. Ultimately, consumers are still feeling the pinch. Even though rates are so low, household debt levels are at a record high. RBA data shows the household debt-to-income ratio has risen from about 70 per cent at the beginning of the 1990s to about 190 per cent now.

Australia: The seasonally adjusted value of new lending commitments to households rose 3.9% in July. This was the strongest since October 2014, and followed a 1.9% rise in June 2019, with the ABS noting ‘For the second month in a row there were particularly strong increases in the level of new lending commitments for owner occupier and investment dwellings.’

Australia: In July, the value of Australian home loans increased by 5.1% on the previous month, ten times greater growth than what was expected and its biggest monthly gain in four years. There’s an adage that one month’s numbers do not make a trend. But we think that the July figures mark a turning point.

Australia: Australian economy is tracking along in reasonable fashion. The number of filled jobs in the economy increased by 67,400, or 0.5%, to 14.3 million in seasonally adjusted terms in the June quarter 2019 according to the ABS. Main jobs increased by 0.8%, or 101,800, and hours actually worked increased by 12.5 million hours to 5.4 billion hours. Total labour income increased by $2.515 billion. Take note gloom-sayers.

 

Australia: An increasingly wealthy Asian middle class, especially in India, has helped deliver a monthly record of 800,000 visitors to Australia in July and maintain healthy growth in the tourism sector as the broader economy suffering from sluggish growth.

Australia: What is interesting is that in the past six months, while the number of people working more than one job has increased by 6.6% (compared with the overall employment increase of 2.8%) there has been a large drop in the number of people working more than two jobs.

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