Fed Up?
- IMF says please don’t.
- World Bank says please don’t.
- China says don’t hurt world demand.
- Larry Summers says they should not.
- Futures market says they won’t .
Then this:
Emerging markets urge Fed to lift rates 
Emerging market central bankers have urged the US Federal Reserve to raise rates sooner rather later in order to end the uncertainty over Fed policy that has pummeled stock markets and currencies in recent weeks.
“We think US monetary policymakers have got confused about what to do. The uncertainty has created the turmoil,” said Mirza Adityaswara, senior deputy governor at Indonesia’s central bank.
“The situation will recover the sooner the Fed makes a decision and then gives expectation to the market that they [will] increase [rates] one or two times and then stop.”
Fed Wavers on September Rate Rise Federal Reserve officials aren’t near an agreement to begin raising short-term interest rates heading into a crucial week of private discussions before their Sept. 16-17 policy meeting, according to their recent comments.
Wednesday marked the beginning of the Fed’s self-imposed blackout, the period when officials stop communicating with the public ahead of a policy meeting and begin a week of internal deliberations and staff briefings.
Though officials appear to remain on track to raise rates this year—after September, there are Fed meetings in October and December—their recent remarks in interviews and elsewhere showed divisions and uncertaintythat could restrain them from moving on rates as soon as next week. (…)
The Fed’s decision isn’t a binary one—to act or not to act. Before every policy meeting Fed staff economists present officials with a variety of choices, typically three, including middle-ground options that navigate between Fed “hawks” who lean away from low interest-rate policies and “doves” who support easy money.
A middle-ground choice now could involve signaling more strongly the Fed’s intent to raise rates this year once officials become comfortable recent market moves aren’t a sign of deeper problems in the global economy. (…)
U.S. JOLTS: Job Openings Rate Gains, While Hiring Slows
The job openings rate rose to 3.9% during July, a new high, from 3.6% in June and 3.3% a year ago. The hires rate, however, dropped back to 3.5% from June’s 3.7% and 3.6% in July 2014.
The actual number of job openings rose 21.7% y/y to 5.753 million. As seen in the rates, the apparent strength in job openings was not matched by firms’ ability to fill positions, as hiring fell 3.8% from June to July, when it numbered 4.983 million, the lowest since August 2014 and 0.4% below a year ago. Thus, the larger number of openings partly reflects the reduced amount of hiring.
The private-sector job openings rate also rose, reaching 4.2% in July from 3.9% in June. The private sector hires rate fell to 3.9% in July from June’s 4.0%, and most sectors had declines.
The number of private sector hires fell back by 4.1% in July from June and was 1.4% below July 2014. Year-to-year comparisons show the largest drops in construction, where hiring fell 22.1%, and in professional and business services, down 5.2%. Leisure and hospitality, by contrast, saw a 7.2% y/y gain, and trade, transportation and utilities had a 2.5% y/y increase. Hiring in manufacturing was nearly steady with a 0.4% rise and that in education and health a 0.2% uptick. Government hiring was up 15.1%.
The total job separations rate fell back to 3.3% in July from 3.5% and the actual number of separations was up a mere 0.1% y/y. The private sector separations rate also edged down, to 3.7% from 3.8% and the government sector’s rate was steady at 1.4%. The layoff & discharge rate fell to 1.1% from June’s 1.3%. The rate in the private sector was 1.3%, down from 1.4%; its peak during the recession was 2.3%. The rate in government was 0.4% for a third consecutive month.
The last times we were at this level of unqualified applicants, it was the cyclical peak…
U.S. BACK-TO-SCHOOL SALES SEEM SLOW
Americans’ self-reported daily spending averaged $89 in August, similar to the $90 to $91 averages Gallup has found each month since April. The latest figure is the lowest August reading since 2012. (Gallup)
Back-to-school sales are often a harbinger for Christmas sales…
DOES CHINA MATTER?
JP Morgan Asset Management:
The chart below shows economic and market data growing at just 2% or so, both in the developed and developing world. This is pretty tepid after 6 years of global monetary and fiscal stimulus. In a 2% growth world, markets are vulnerable to corrections, and have difficulty sustaining lofty valuations. All things considered, while “emerging markets contagion” is the proximate cause of this correction, the low rate of developed market economic and corporate revenue growth is the more telling one.
Why is the China slowdown important?
- As a share of world GDP, China is more than twice as large as Asia ex-Japan in 1997, and more than twice as large as Peripheral Europe in 2011
- The emerging world has been converging to China since 2000. There’s an 80%+ correlation between China and Asia ex-China manufacturing surveys, and J.P. Morgan Securities estimates an almost 1:1 pass-through from Chinese weakness to the rest of the EM world
- China’s commodity demand is falling, and the long lead times needed to bring industrial metals and energy into production can extend the downsides of commodity super-cycles to 10-20 years
CHINA FACTS
Sales of passenger cars slipped 3.4% to 1.42 million vehicles last month, following a 6.6% decline in July and a 3.4% fall in June. Combined sales of passenger and commercial vehicles fell 3% in August to about 1.66 million vehicles, the government-backed China Association of Automobile Manufacturers said Thursday. (…)
Most car makers reported weak China sales for August. GM’s sales were down 4.8% from a year earlier, Ford’s were off 3.3% and Nissan’s fell 5.5%. (…)
Advisory firm AlixPartners said in a report Wednesday that it expects low single-digit percentage growth to be the “new normal” for China’s car market, adding that total annual sales volume this year may show its first contraction since 2008. The report projected Chinese auto sales to grow 4.1% annually through 2018, then slow to 2.9% for the next five years. (…)
SAIC General Motors—a joint venture between General Motors Co. and SAIC Motor—built 21% fewer cars in August than it had a year earlier, according to a filing by the Chinese company to the local exchange. At SAIC Volkswagen, the German car maker’s joint venture with SAIC, production was down 24%. At Ford Motor Co.’s car-making joint venture, it was down.
GM, VW and Ford all said they are adjusting production to balance supply and demand, but they continue to believe that the market will grow. (…)
Despite the cut in production, dealers still struggle with high inventories. A recent survey of China’s more than 20,000 dealers by the China Automobile Dealers Association, a government-backed trade group, showed that at the end of July, dealers on average had inventories equal to 1.65 months’ sales, virtually unchanged from 1.68 months in June. In China, analysts regard 1.5 months of sales on lots as the “alert level” at which dealers should begin to be concerned about high inventory.
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Evercore ISI survey of China sales remains weak.
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China Manpower Employment survey keeps falling and is almost at its 2009 low. The chart below is up to June. Latest tally is 5%.
And if you believe Li Keqiang saying that domestic demand and the Services economy will counteract weak manufacturing, check these charts out:
And the larger the employers, the weaker employment is:
Stable employment growth is crucial for China’s and the Party’s stability.
DESPITE all the ups and downs in China’s economy over the past decade, its official unemployment rate has remained incredibly stable. Incredible in the sense of “impossible to believe”. The registered urban jobless rate is just 4.1% now. This would seem to point to economic vigour, but the problem is that it has sat at that precise level, without moving, since late 2010. And it has stayed within an absurdly narrow range of 4.0-4.3% since 2002, even at the depths of the global financial crisis. (The Economist)
Two days ago:
Li said the creation of over 7 million new urban jobs and keeping unemployment rate at 5.1 percent in the first half of this year showed China’s economy was on “reasonable track”.
So, it’s not 4.1% but more like 5.1%. But is it?
China’s economy contracted at the steepest rate for six-and-a-half years in August, according to survey data. The Caixin China Composite PMI (which covers both manufacturing and services), compiled by Markit, indicated the largest drop in output since the height of the global financial crisis in February 2009. The ‘all sector’ output index slipped to 48.8 from 50.2 in July.The slowest growth of service sector business activity for just over a year was accompanied by the steepest drop in manufacturing output since November 2011. Factory output has now fallen for four successive months due to a combination of weak domestic demand and deteriorating exports. Goods export orders fell in August at one of the steepest rates seen over the past three years.
The downturn continued to feed through to the labour market, with employment across the two sectors declining at a rate not seen since January 2009. Increased job shedding in manufacturing was joined by a near-stagnation of staffing levels in the services economy.
Further weakness of production and employment trends look likely in September, as overall inflows of new orders fell in August for the first time since April of last year, led by an increasingly marked downturn in manufacturing orders.
See how Markit’s independent PMI surveys show that employment has been in contraction most of the time since 2012. That’s 4 years!
In fact, Markit’s data suggest that the Chinese economy is growing at a 4.0-4.5% annualized rate lately, far from the 7% “forecast”.
Pork pushes China CPI to 12-month high Deflation remains a threat, with factory prices still in decline
Consumer prices rose at an annual pace of 2 per cent in August, the fastest in 12 months and up from 1.6 per cent in July. (…)
But pork and vegetable prices contributed 0.6 and 0.4 percentage points, respectively, to the headline figure, suggesting that underlying inflation remains far below the government’s full-year target of 3 per cent. Wholesale prices for industrial goods fell for the 42nd consecutive month in August, dropping 5.9 per cent, faster than the 5.4 per cent decline in July. Pork prices rose 20 per cent from a year earlier.
Food prices in biggest decline since 2008 UN’s food index impacted by bumper crops and commodity rout
The FAO’s monthly food index in August fell 5.2 per cent from the month before, the steepest monthly drop since December 2008. The index is now at its lowest level since April 2009. (…)
A separate FAO report on supply, demand and inventories of grains and cereals showed that the pressure on prices would likely continue.
The ratio of wheat inventories to consumption is forecast to rise to a four-year high of 28.3 per cent from 27.9 per cent the year before thanks to good harvests and lower demand from importing countries.
Wheat production is expected at 728m tonnes, falling slightly from the year before. (…)
Global inventories of coarse grains, which include corn and barley, are forecast to reach an all-time high of almost 272m tonnes in 2016. The EU is importing more than expected levels of corn after weather-related damage, but China is expected to import less corn, barley and sorghum while Iran and Mexico are also likely cut their coarse grain purchases. (…)
The FAO said its cereal price index fell 7 per cent in August from the month before, while vegetable oils recorded a 8.6 per cent drop, to the lowest level since March 2009 due to lower import demand by India and China.
Weak demand from China and north Africa depressed dairy prices while the Brazilian real depreciation led to accelerated selling by the country’s farmers.