Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: January 2017

THE DAILY EDGE (4 January 2017)

Global manufacturing ends 2016 with fastest growth for nearly three years

The JPMorgan Global Manufacturing PMI, compiled by Markit from its business surveys in 28 countries, rose from 52.1 in November to 52.7 in December, its highest since February 2014. The survey has signalled a steady upturn the pace of manufacturing growth in the second half of 2016 after indicating a near-stagnant malaise in the first half of the year. The December survey is broadly indicative of global manufacturing output growing at a robust annual rate of 4-5%.

Expansions were recorded in 20 countries in December with only eight reporting deteriorations. The strongest improvement was seen in the Netherlands, followed by Austria, while Brazil recorded the steepest decline, followed by Malaysia.

U.S. Construction Activity Improves

The value of construction put-in-place increased 0.9% during November following a 0.6% October gain, revised from 0.5%. Construction was up 4.1% y/y following stronger growth from 2012 through 2015. The latest rise compared to expectations for a 0.6% increase in the Action Economics Forecast Survey.

Private sector construction activity improved 1.0% (4.6% y/y) after a 0.1% October uptick. Residential building increased 1.0% (3.0% y/y) after a 1.6% improvement. Single-family building activity increased 1.8% (-0.9% y/y) after a 2.8% jump. The value of improvements rebounded 1.5% (+6.8% y/y) and made up October’s 1.0% decline. Multi-family building activity was off 2.7% (+10.7% y/y), the first monthly fall since July.

Public sector building activity improved 0.8% (2.6% y/y) following three months of strong increase. Commercial construction gained 0.5% (23.4% y/y) following two months of decline, and education facility activity increased 2.1% (6.2% y/y). Highway & street construction, which is roughly one-third of the public sector total, improved 1.1% (10.5% y/y), the third straight month of strong increase.

 large image large image
 large image large image

  • Six Reasons Construction Boom Won’t Last
1. Mortgage rates are rising and the Fed expects more hikes.
2. Housing Starts Dive 18.7 Percent
3. There’s a Glut in Luxury Apartments
5. Online sales killed department store sales.
6. 21 states plus D.C. have minimum wage hikes this year.

Don’t look for it, there was no #4!!!

  • One item that stood out in the ISM report was inflation. The Manufacturing Prices Index rose to the highest level since 2011. Note that the higher “upstream” prices in manufacturing are a global phenomenon which we discussed back in November. (The Daily Shot)

Here’s a longer term chart from Bespoke:

010317-ism-chart-prices-paid

Euro area annual inflation up to 1.1%

Euro area annual inflation is expected to be 1.1% in December 2016, up from 0.6% in November 2016, according to a flash estimate from Eurostat, the statistical office of the European Union.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in December (2.5%, compared with -1.1% in November), followed by services (1.2%, compared with 1.1% in November), food, alcohol & tobacco (1.2%, compared with 0.7% in November) and non-energy industrial goods (0.3%, stable compared with November).

image
Ford Cancels Plans for New $1.6 Billion Mexico Plant
Manhattan Home Prices Are Tumbling Down

Americans Are Putting Billions More Than Usual in Their 401(k)s

EUROZONE COMPOSITE PMI AT 67-MONTH HIGH

The end of 2016 saw the eurozone economy maintain a robust pace of expansion. Output growth accelerated to a 67-month high to round off the best quarter of the year. However, price pressures continued to mount, with inflation of both input costs and output charges gathering pace.

At 54.4 in December, up from November’s 53.9, the final Markit Eurozone PMI® Composite Output Index signalled a faster rate of expansion than the earlier flash estimate. Manufacturing led the growth acceleration, with production increasing at the quickest pace since April 2014. Service sector activity also rose solidly, with the rate of increase staying close to November’s 11-month high.

image

Economic expansions were signalled across the ‘big-four’ nations. The fastest growth was seen in Spain (six-month high) followed closely by Germany (five-month high). The pace of increase in France accelerated to a one-and-a-half year record, but remained below the euro area average. Italy was the only one among the largest nations to see slower growth.

Underpinning the stronger expansion of eurozone economic activity was an improved inflow of new business. Growth of incoming new orders was the fastest since December 2015 and among the quickest seen over the past five-and-a-half years. Solid increases were registered across the ‘big-four’ nations, led by Germany (although Germany was the only economy where growth did not accelerate).

Work-in-hand rose for the nineteenth month running in December, with the rate of increase equalling November’s record for that sequence. This in turn encouraged further job creation, with employment rising for the twenty-sixth month in a row. Spain and Germany both registered solid jobs growth in December. France and Italy also saw employment increase, albeit marginally. Spain was the only one of the ‘big-four’ to see staffing levels rise at a faster pace than in November.

Input cost inflation surged to a five-and-a-half year record in December. This reflected a combination of higher fuel and oil prices alongside increased import costs due to the weaker euro exchange rate (the latter impacting manufacturers to a greater extent than service providers).

Output charges rose for the second month running and at the steepest pace since July 2011. Increases in Germany and Spain offset further price discounting in France and Italy.

December saw further solid growth of eurozone service sector business activity. At 53.7, the final Markit Eurozone PMI® Services Business Activity Index was down only slightly from November’s 11-month high of 53.8 and above the earlier flash estimate of 53.1.

The fastest rates of expansion were signalled in Spain and Germany, despite both seeing output growth moderate slightly since the prior survey month. The pace of increase also eased in Italy. France was the only one of the ‘big-four’ to buck the slower growth trend, with business activity rising to the greatest extent since September. Although this took France above Italy in the output growth rankings, it remained below Germany and Spain. Data for Ireland are released on January 5th.

Eurozone service providers linked higher levels of business activity to a combination of solid inflows of new orders and rising backlogs of work. New business expanded at an identical pace to November’s ten-month high. Similar rates of increase were seen across the ‘big-four’ nations.

Backlogs of work rose for the seventh successive month. Companies responded by raising capacity, leading to an increase in employment for the twenty-sixth consecutive month. Staffing levels rose solidly in Germany and Spain, while an increase was also signalled in Italy. French services employment was unchanged.

Business confidence† hit an 11-month peak and was among the highest levels achieved over the past five years. Sentiment improved in Germany, France and Italy, but eased slightly in Spain.

December signalled that input cost inflation accelerated to a 57-month record, mainly due to higher fuel and oil prices. Marked and accelerated cost increases were signalled across the ‘big-four’ nations. Output charges rose for the second month running and to the greatest extent since July 2011. Increases in Germany and Spain offset reductions in France and Italy.

Chris Williamson, Chief Business Economist at IHS Markit:

The survey data are signalling a 0.4% expansion of GDP in the fourth quarter, with growth
accelerating in December as business activity rose at the fastest rate for over five-and-a-half years.

image

Contact: edgeandodds [at] gmail.com