Tag: Germany

Continued Progress in China and the U.S., with Europe and Japan Growing More Modestly

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the second straight month in July, rebounding from softness from January through May. The headline index rose from 50.7 in June to 52.0 in July, its highest level since March 2011. The underlying data were mostly higher, including new orders (up from 51.8 to 53.7), output (up from 51.8 to 52.8) and exports (up from 50.6 to 52.7). The sales pace was the fastest since January 2011, and each of these measures are a sign that recent stimulative actions taken by the Chinese government have had a positive impact. Some downsides in the PMI survey contracting hiring rates for the 16th consecutive month (up from 48.7 to 49.5) and slightly accelerated raw material prices (up from 50.8 to 52.9).

Meanwhile, Japanese manufacturing activity also expanded for the second straight month, but it eased slightly in July. The Markit/JMMA Flash Japan Manufacturing PMI declined from 51.5 to 50.8. The recent uptick in activity has materialized as the Japanese economy has recovered from an increased in taxes that went into effect on April 1st. Still, manufacturers in the country cannot cheer yet, as output growth came to a halt in July (down from 51.8 to 50.0, or neutral). Other indicators were mixed. Export sales (up from 49.0 to 51.6) and employment (up from 49.8 to 50.8) both shifted to positive growth, but the pace of new orders decelerated somewhat (down from 52.0 to 51.1).

In other news, the Markit Flash Eurozone Manufacturing PMI edged marginally higher, up from 51.8 to 51.9. The Flash Eurozone PMI Composite PMI was up more strongly, increasing from 52.8 to 54.0, suggesting healthier growth in the service sector. For manufacturers, the data suggest slightly faster growth in production (up from 52.8 to 53.0) and exports (up from 52.4 to 52.7), but the pace of growth for new orders (51.9) and employment (50.3) were unchanged.

Overall, these figures provide a limited degree of encouragement for the manufacturing sector in Europe, which has worried of late about slow economic and income growth. It is also still clear that the data vary on country-by-country basis, with German manufacturing activity (up from 52.0 to 52.9) accelerating in July but with French manufacturers noting yet another deterioration in sales and output. Indeed, the French economy remains in a rut, with manufacturing activity positive in just three months since January 2013.

Closer to home, the Markit Flash U.S. Manufacturing PMI decreased from 57.3 to 56.3. Despite the slight easing in July, manufacturing activity continues to grow at relatively decent rates. Through the first seven months of 2014, the top-line index has averaged 55.9, stronger than the 53.5 average noted for 2013 as a whole. The July data show both new orders (down from 61.7 to 59.8) and output (down from 61.0 to 60.4) growing at a healthy paces, albeit with some deceleration for the month. Yet, hiring growth remains more modest (down from 53.8 to 52.1) and export sales (down from 50.9 to 50.6) were just barely growing, suggesting that there remains room for improvement.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on August 1.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – June 30, 2014

Here are the files for this week’s Monday Economic Report: 

The U.S. economy contracted in the first quarter more than we previously thought, with real GDP down 2.9 percent at the annual rate. The sharply lower revision was much worse than the previous estimate of a 1.0 percent drop. Decreased inventory spending and weaker goods exports accounted for much of the decline in output, but consumer spending on services also increased at a slower pace than earlier reports suggested, contributing to the latest revision. Fixed investment and government spending were also drags on growth. Overall, the data confirm that economic activity started 2014 on a disappointing note, but they also suggest that this softness went beyond weather-related slowdowns.

However, the real GDP data also point to a possible strong rebound in the current quarter. For instance, inventory spending is likely to pick up as more firms restock their shelves. In addition, other data point to recoveries in manufacturing activity and retail sales in the second quarter, which should help boost consumer and business spending figures. Real GDP should exceed 3 percent in the second quarter, bouncing back from the weak data in the first quarter. Moreover, manufacturers remain mostly positive about the second half of this year. Perhaps that is why financial markets seemed to mostly shrug off the bad news on real GDP last week.

Indeed, many of the measures of health for the manufacturing sector remain encouraging. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased from 56.4 in May to 57.5 in June. This was its fastest pace in more than four years, led by strong gains in both new orders and output. Manufacturer sentiment in both China and Japan also stabilized after contractions in previous months. At the same time, manufacturing activity in the Kansas City and Richmond Federal Reserve Bank districts continued to expand, albeit with both at slower paces than the month before. These two releases were largely consistent with other regional surveys, including those from New York and Philadelphia, showing rebounds since the winter months.

Still, not all of the manufacturing news out last week was positive. Durable goods orders fell 1.0 percent in May, reflecting weaker-than-anticipated growth for the sector. Much of that decline stemmed from reduced nondefense aircraft and parts sales, although the broader data were also mixed. Meanwhile, European manufacturing activity continued to decelerate. The Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened many of the key activity measures, including new orders, output, exports and employment. Of course, it is also worth noting that Europe’s expansion remains uneven, with Germany seeing a marginal gain in activity in June while France fell back into a contraction.

In other news, personal spending improved in May after remaining flat in April, assisted by a decent rebound in durable goods purchases. Personal income also showed a slight uptick, with manufacturing wages and salaries continuing to move higher. Such reports have helped to lift consumer confidence, with data from the Conference Board’s index increasing to its highest level in more than six years. The consumer sentiment measure from the University of Michigan and Thomson Reuters also edged higher, but with persistent anxieties about future economic and income growth. Finally, there were encouraging headlines on the housing market last week, with strong gains in both existing and new home sales in May.

This week, we will get new jobs numbers on Thursday—one day earlier due to the Independence Day holiday on Friday. I would expect employment growth similar to what we saw in May, with a consensus estimate of 210,000 additional nonfarm payroll workers and around 10,000 or so net new manufacturing employees. There will also be new PMI data from the Institute for Supply Management and international trade figures. Each will be closely watched, with manufacturing activity expected to pick up and we hope better news for exports. Other highlights include news releases for construction spending, factory orders and manufacturing activity in the Dallas Federal Reserve district.

Chad Moutray is the chief economist, National Association of Manufacturers. 

contributions to change in real GDP - jun2014

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Chinese Manufacturers Report Positive Growth in Activity for the First Time in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the first time in 2014, with the index increasing from 49.4 in May to 50.8 in June. The May report had shown some signs of stabilization; therefore, the June data extended upon those improvements. For instance, new orders (up from 50.2 to 51.8) and output (up from 50.3 to 51.8) grew stronger for the month, with both measures at their fastest paces since December. Still, the Chinese economy continues to have its challenges with decelerated activity. Export sales (down from 52.7 to 50.6) were slower, and hiring (up from 47.3 to 48.7) remained negative despite some progress in June. Overall, though, these findings support the view that China’s stimulus measures have helped to support a rebound.

Several of the other reports out today were also encouraging for manufacturers. For example, the Markit/JMMA Flash Japan Manufacturing PMI also returned to expansion in June, up from 49.9 to 51.1. This was the first positive reading for manufacturing activity in three months, and it was a sign that sentiment has begun to recover from an increase in taxes that went into effect on April 1st. The survey results reflected positive growth for new orders (up from 49.4 to 52.0) and production (up from 49.2 to 51.8). Yet, much like China, exports (up from 48.2 to 49.0) and employment (down from 51.0 to 49.8) were weak spots, with both contracting for the month. In addition, activity levels remain well below where they were just a few months ago, suggesting that there remains more room for improvement.

Meanwhile, closer to home, the Markit Flash U.S. Manufacturing PMI increased from 56.4 to 57.5, its fastest pace in over four years. Healthy gains in new orders (up from 58.2 to 61.7) and output (up from 59.6 to 61.0) helped to fuel this strength, with each figure at their highest level since the PMI report began in October 2009. Employment (up from 53.5 to 53.8) also picked up for the month, indicating modest hiring growth. On the other hand, exports (down from 51.5 to 50.9) slowed slightly. These data suggest that U.S. manufacturing activity has rebounded in the second quarter from winter-related softness in the first quarter, much as we have seen in other indicators, as well.

In other news, the Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened each of the key measures in this report, including new orders (down from 52.9 to 52.0), output (down from 54.7 to 52.8), exports (down from 52.8 to 52.7), and employment (down from 50.8 to 50.4). The good news is that each of these indicators continues to expand, but just more slowly than we might prefer. This, of course, is why the European Central Bank has taken actions in recent weeks to help stimulate the European economy, and why further actions might be forthcoming down the line.

The Markit Flash Germany PMI increased very slightly from 52.3 to 52.4, reflecting a modest expansion in manufacturing activity in the country. Yet, output (down from 55.3 to 52.9) fell to its lowest level since September. On a positive note, the German economy is still growing, unlike France’s. The Markit Flash France PMI declined from 50.3 to 47.1, with activity down across-the-board.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early June. This month marks the premier of preliminary data for Japan.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Chinese Manufacturing Sales and Output Turned Slightly Positive in May

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) reported some degree of progress in May, particularly for sales demand and production. The headline PMI figure moved slightly higher, up from 48.1 in April to 49.7 in May. On the one hand, it suggests that overall manufacturing sentiment continues to contract, with PMI values below 50 for five straight months. Yet, the pace of the decline appears to be slowing, which could be a sign of stabilization for the market. Indeed, new orders (up from 47.7 to 50.2), export sales (up from 49.3 to 52.7), and output (up from 48.0 to 50.3) all turned positive for the month, which is good news. Still, hiring continued to decelerate (down from 48.6 to 47.3), and as the press release states, “downside risks to growth remain.”

Meanwhile, the Markit/JMMA Flash Japan Manufacturing PMI rose from 49.4 to 49.9, indicating that the Japanese economy has now contracted for the second straight month. Much of this stems from a tax increase that went into effect on April 1st, with the soft export market also a factor. New orders (up from 47.4 to 49.4), production (up from 46.2 to 49.2), and exports (down from 49.1 to 48.2) continued to shrink in May, even as there was some progress. Still, it is noteworthy that May’s PMI figure was nearly at the neutral rate, suggesting that there might be some stabilization occurring, much like we saw in the Chinese data.

In other news, the Markit Flash Eurozone Manufacturing PMI declined from 53.4 to 52.5. New orders (down from 53.9 to 52.9), output (down from 56.5 to 54.7), and exports (down from 53.6 to 52.8) have all decelerated somewhat in May, with the pace of production growth at its lowest level since December. Hiring (down from 51.3 to 50.8) remains positive, with small net increases for the fifth straight month.

Even with the slight easing, Europe’s PMI values for the sector have averaged modest growth with 53.2 so far in 2014, a welcome improvement from the contractionary environment pervasive during the deep two-year recession. One of the more closely watched variables is input prices, particularly with recent deflationary worries as stated by the European Central Bank. Raw material costs did continue to fall for the third straight month, but the rate of decline slowed (up from 45.2 to 48.6).

The Flash data for both France and Germany were also somewhat softer in May. Germany’s PMI for manufacturers dropped from 54.1 to 52.9. It is down from its recent peak (a 2½-year high) of 56.3 in January. At the same time, France’s manufacturing sentiment moved back into a slight contraction (down from 51.2 to 49.3), ending two months in positive territory, with activity down mostly across-the-board.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early June. This month marks the premier of preliminary data for Japan.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Markit: Chinese Manufacturing Activity Has Contracted in Each Month So Far in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ index (PMI) continued to decelerate, down from 48.5 in February to 48.1 in March. The index has contracted for three consecutive months, with March’s pace being the slowest since July. As noted in the most recent Global Manufacturing Economic Update, these data mirror the easing that we have seen in other indicators, including industrial production, fixed asset investment, and retail sales. As such, they also suggest that real GDP might fall below the 7.7 percent rate seen in the fourth quarter.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on April 1. The March data reflect decelerating levels of activity for new orders (down from 48.1 to 46.9) and output (down from 49.2 to 47.3). On the positive side, export sales shifted from contraction (49.3) to a slight expansion (51.4), and employment growth declined at a slower rate (up from 46.9 to 49.3).

Hongbin Qu, HSBC’s China Chief Economist and the Co-Head of Asian Economic Research, said, “Weakness is broadly-based with domestic demand softening further. We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.”

Meanwhile, Eurozone manufacturers have seen expanding levels of activity for nine straight months, with continued modest growth in March. Nonetheless, the Markit Flash Eurozone Manufacturing PMI edged slightly lower, down from 53.2 in February to 53.0 in March. The underlying data were mixed. Sales growth picked up marginally from 54.1 to 54.4, but production (down from 55.5 to 55.4), exports (down from 54.7 to 53.6), and hiring (down from 50.4 to 50.3) moved slightly lower. Still, growth in output and new orders remained relatively healthy, even with some easing in many of the key figures.

One of the lagging economies in Europe has been France, which had contracting levels of manufacturing activity in all but 2 of the past 27 months. The good news was that French manufacturing sentiment turned positive once again in March, with the Markit Flash France Manufacturing PMI up from 49.7 to 51.9. Activity was up across the board, and growth in new orders (up from 46.6 to 53.3) were at their highest level since June 2011. Elsewhere in Europe, German manufacturing activity slowed a bit, down from 54.8 to 53.8. Despite the deceleration, output (down from 57.6 to 57.0) and sales (down from 57.2 to 55.6) growth remained strong.

Likewise, the Markit Flash U.S. Manufacturing PMI moved lower for the month, down from 57.1 to 55.5. February’s figure reflected the strong rebound from January’s weather-related softness due to severe winter storms. Much like the European data, the larger story is the continued modest growth for manufacturers in the U.S. market. For instance, new orders (down from 58.8 to 58.0) continued to grow strongly even with a little easing for the month, and production (up from 57.2 to 57.5) and exports (up from 50.9 to 51.0) had a slightly faster pace of growth.

Employment growth (down from 54.0 to 53.9) was essentially unchanged for the month despite edging a bit lower for the month. After hiring nearly stalled last June, manufacturers have continued to add to their workforces, albeit at a modest pace.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Markit: Manufacturing Output is the Highest in Two Years, But New Orders Slowed

Markit said that manufacturing activity in February continued to expand, but the pace of new orders slowed somewhat from January. The Flash Manufacturing Purchasing Managers’ Index (PMI) for the United States declined from 55.8 to 55.2, suggesting a marginal change in the overall picture. The good news is that output appears to be recovering strongly, up from 56.8 to 58.1. Five months ago, the output index stood at 51.2, illustrating the improvements seen since then. Moreover, February’s output figure is the highest that it has been since March 2011.

The pace of growth for new orders, employment, and input prices eased a bit. These numbers – particularly sales – helped bring the composite index down for the month, even with higher output. The index for new orders dropped from 57.4 to 56.4. While U.S. sales continued to rise, new export orders contracted once more, reversing two months of modest gains and reflecting continuing weaknesses abroad, especially in Europe (see below). Meanwhile, hiring and raw material prices expanded in February, with each at their slowest pace of the last few months.

Markit Chief Economist Chris Williamson said, “Employment rose in February, but the rate of job creation slowed and remained weaker than policymakers would like to see.” He went on to say: “While the survey … paints an encouraging picture of the manufacturing sector, helping to drive a return to growth for the economy as a whole in the first quarter of this year, firms still need to see greater confidence in the longer-term economic outlook for employment numbers to pick up again.”

This improving – but still cautious – economic outlook in the U.S. stands in contrast to what we continue to see in Europe. The Markit Flash Eurozone Manufacturing PMI was essentially unchanged, down from 47.9 in January to 47.8 in February. While this index has improved from the 44.1 figure observed in August, it continues to reflect a challenging environment for businesses on the continent. The PMI has shown contracting levels since August 2011, or for 19 straight months.

Despite the persistent bad news, the rate of decline for new orders slowed in February in the manufacturing sector. One positive to report was an expansion in new export orders, up from 48.8 to 51.7, the first increase in export sales since June 2011. The Markit report attributed this to increased exports to Asia and the U.S., with strength particularly seen in Germany.

Along those lines, the Flash German Manufacturing PMI shifted from a slight contraction (49.8) to a slight expansion (50.1) for the month. As noted in the Eurozone release, the main driver of the higher index reading was stronger growth in sales, both domestic and foreign. The new orders index rose from 48.5 to 52.7; while the new export orders index increased from 48.2 to 54.6. The jump in sales slowed the decline in employment, at least for February, which was a good sign.

Chad Moutray is the chief economist, National Association of Manufacturers.

 

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An Austerity Budget? Maybe the Germans are on to Something

From the left-liberal Der Spiegel, ”German Austerity Program Offers Chance for New Beginning“:

As Chancellor Angela Merkel’s embattled government gets ready to thrash out an austerity program to rein in the budget deficit, fears are growing that stringent cuts might choke off growth and anger voters. But after 50 years of near-continuous spending hikes, there is ample scope for radical savings that would not hurt public services and may even boost the economy.

The German government is putting the finishing touches this week on an austerity program that offers a chance of a fresh start, not just for the country’s complex and bloated tax and welfare system, but also for Chancellor Angela Merkel.

Yes, the taxes included are significant:  a higher tobacco tax, and new levies on nuclear fuel rods, airline ticket purchases and financial transactions.

This is telling:

The Americans don’t like the plans. The atmosphere was decidedly frosty at a meeting last week in Berlin between US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schäuble, because the two men fundamentally disagree. Geithner urged the Europeans to spend more and to run up debts to boost economic growth and help the global economy. Schäuble countered that high debts were the root of the turmoil now engulfing the euro zone.

In our experience, Germans are especially leery of deficit-induced inflation, certainly more than Americans. Something about Weimar …

P.S. Well, it IS using biomass for heating.

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