Year: 2023

U.S. FLASH PMI: US private sector employment falls for first time since June 2020 amid muted demand conditions

The headline S&P Global Flash US PMI Composite Output Index posted at 50.7 in November, matching the figure seen in October. This indicated a marginal rise in business activity that was the joint-fastest since July.

Although manufacturing firms signalled a slower pace of expansion, service providers saw a fractional uptick in the rate of output growth. Manufacturing firms noted greater efficiency in production processes supported the increase in output, while demand conditions stagnated. Meanwhile, the upturn in services activity was the quickest since July as companies noted growth in customer bases following successful marketing campaigns.

The first expansion in service sector new business for four months helped support a renewed rise in total new orders during November. The pace of growth was only fractional, however, as goods producers recorded a stagnation in new sales on the month. At the same time, total new export orders rose for the first time since July as manufacturers noted an expansion in new sales from external customers.

Less robust expectations regarding the outlook for output over the coming 12 months at service providers weighed on overall business confidence in November. Manufacturers saw an uptick in the degree of optimism, albeit still below the long-run series average, amid hopes of a stabilization in global economic conditions and ongoing investments in improved production processes. Service sector business expectations dipped to their lowest since July as firms highlighted concerns regarding tightening customer spending and lingering economic uncertainty.

Employment

US companies lowered their workforce numbers during November for the first time in almost three-and-a-half years. Although only fractional, employment tipped into contractionary territory following the first drop in service sector headcounts since June 2020. Manufacturers, meanwhile, recorded back-to-back declines in staffing numbers.

Businesses commonly mentioned that relatively muted demand conditions and elevated cost pressures had led to lay-offs. Other companies noted that hiring freezes were in place amid pressure on margins.

Dwindling levels of unfinished business also impacted hiring decisions, as backlogs of work fell for the seventh month running midway through the final quarter of 2023. Goods producers and service providers alike recorded quicker contractions in incomplete business, largely due to a lack of pressure on operating capacity.

Prices

Margin pressures eased across the private sector, as firms raised their selling prices at a quicker pace despite a second successive monthly slowdown in the rate of cost inflation. Input prices continued to rise, but at a pace that was the slowest since October 2020 and softer than the long-run series average. Firms noted that lower energy and raw material costs dampened price increases, with some also highlighting that a reduction in workforce numbers had eased cost pressures. Manufacturers signalled a notable slowdown in input price inflation following successive monthly accelerations in the pace of increase between July and October.

A faster rise in overall selling prices was led by service sector firms in November, with the pace of charge inflation picking up from October’s three-year low. In contrast, manufacturers recorded the slowest increase in factory gate charges since August amid efforts to drive new sales and remain competitive.

Demand for goods remains tepid (“demand conditions stagnated”), like in the Eurozone and Japan. The inventory cycle is not complete just yet.

Growth in services was “only fractional” after 3 months of falling new orders.

Importantly, total employment declined for the first time in 3.5 years, that’s since Mid-2020 with the “first drop in service sector headcounts since June 2020”. Recall that the BLS recorded 150k new jobs in total in October, with service providers contributing 161k jobs.

Since June, monthly services employment rose by 173k on average, contributing 90% of all new jobs in the economy. S&P Global’s survey reveals that some firms noted that a “reduction in workforce numbers had eased cost pressures”. No more labor hoarding?

In 2022, employment growth accounted for 32% of aggregate labor income (employment x hours x wages). The contribution fell to 23% in the first half of 2023 and to 19% in the last 5 months.

Wage growth now adds the most to labor income growth but sequential gains have slowed to +3.2% annualized in the 3 months from +4.7% in the 3 months previous.

Incidentally, John Hussman has this chart aggregating 7 employment-related data series illustrating the strengthening headwinds for the labor market:

• American Borrowers Are Getting Closer to Maxing Out Credit-card utilization and delinquency rates are on the rise.

Card loans are still growing, on average rising 1.6% in October over September across five big U.S. card lenders, versus a seasonally typical 0.7% increase, according to tracking of the latest monthly data by analysts at Goldman Sachs. The trend suggests that consumers still are willing and able to use their cards, portending well for retailers. U.S. retail sales slowed in October, but by less than feared, and were still at an overall solid level. (…)

But as far as people paying back those loans, the data so far is less compelling. The average rate of 30-day-plus delinquency across the five big lenders jumped 0.16 percentage point from September to October, above the typical seasonal jump of 0.06 point, according to Goldman’s tracking. Net charge-offs jumped 0.77 point on average, compared with a 0.18-point typical rise. (…)

A recent note published by the Federal Reserve Bank of Boston found that as of July, consumers with annual household incomes of less than $50,000 whose accounts were delinquent were on average utilizing 80 to 90 percent of their available credit. This leaves “those consumers with a very small amount of credit left on their accounts to cushion against a deterioration of their financial situation,” according to the paper. Across all cardholder income groups as of July, average utilization rates—the ratio of outstanding card account balance to the account’s credit limit—were above February 2020 levels. (…)

The Fed’s latest Senior Loan Officer Opinion Survey for the third quarter found “significant net shares of banks reported tightening lending standards for credit card and other consumer loans.” The Boston Fed review noted that the average card credit limit, adjusted for inflation, was below its level in early 2020.(…)

The silver lining from a macroeconomic perspective is that challenges could be fairly concentrated within certain subsets of consumers, such as those with lower incomes and student-loan debts.

American Express, which tends to have wealthier and more creditworthy borrowers, reported a 30-day-plus delinquency rate as of October of 1.3%, versus over 4% on average across the five lenders, according to Goldman’s tracking. The strong job market also helps ease pressure—though any change there could expose some households.

Beyond sorting loans by borrower income, the timing of loans could also be important. In particular loans made over the prior couple of years could prove more dicey, as some consumers’ credit profiles were bolstered by the pandemic stimulus and recovery. “We’re getting closer to the peak of this massive 2022 vintage of credit, which was a period when several underwriters apparently loosened standards,” says Goldman analyst Ryan Nash. (…)

In truth, consumer credit card liabilities are not very problematic when measured against disposable income. In terms of leverage, we are far from the pre-GFC era:

The problem, as shown in this next chart, is financing costs which have doubled since the end of 2021 and are 55% above their pre-pandemic level. Personal interest payments now represent 2.7% of disposable income, up from 2.0% pre-pandemic and getting close to previous strangle points (dash).

But the financial stress has accelerated since June as Americans reverted to credit cards to offset their slowing income:

The compounding of higher credit balances with higher interest rates is quickly eating into disposable income. In September alone, personal interest payments jumped 7.2% from August and are now 32% above their December 2022 level, before student loans interest payments resumed in October. Disposable income is up 5.6% YtD.

This financial reality won’t go away anytime soon. in fact, it will get worse better getting better. If Americans don’t curb their spending this holiday season, they will have to after Christmas.

Their only blessing comes from lower gasoline and heating oil prices, down some 15% since mid-September, unexpectedly freeing some discretionary dollars.

While on the financial bite from higher interest rates, Goldman Sachs illustrates the sharp rise in S&P 500 companies borrowing costs. This is a 4-quarter average so the quarterly impact has yet to peak:

Earnings pre-announcements are just about in line with Q3 but are much worse than during Q4’22 at the same time.

In the past 2 weeks, 14 of the 20 new pre-announcements were negative and 5 were positive, a 2.8 N/P ratio. Last week, all 7 were negative.

Q4 estimates are now +5.4% vs +11.0% on Oct.1.

Q1’24 are +8.0% vs +9.6%.

Trailing EPS are now $218.73. Full year 2023e: $220.48. Forward 12m EPS: $235.82e. Full year 2024: $245.00e.

Black Friday Shoppers Set Online Spending Record, Adobe Says US online revenue up 7.5% from last year: Adobe Analytics

Black Friday shoppers spent a record $9.8 billion online in the US, Adobe Analytics reported, offering a positive sign for retailers facing lackluster sales forecasts for the holiday season.

Demand for electronics, smartwatches, TVs and audio equipment helped boost the day’s online sales by 7.5% compared with last year. Consumers extended their budgets by leaning on buy-now, pay-later options, which climbed by 72% from the week before Thanksgiving. (…)

US online sales grew 9% year-on-year in a separate Salesforce Inc. gauge, driven by footwear, sporting goods, health and beauty. Clothing, home and beauty showed the biggest discounts. (…)

• Black Friday Spending Was Strong. How People Pay for Gifts Is Upending Retailers. Consumers are shifting away from store-branded credit cards, which have been lucrative for retailers, as brand loyalty wanes and interest rates rise.

(…) Americans carry fewer cards and increasingly finance purchases with buy now, pay later providers. Interest rates surpassing 30% on some retailers’ credit cards aren’t helping, according to analysts. (…)

More shoppers visited stores and online spending grew on Black Friday this year compared with last year, according to third-party analytics firms.

U.S. retail sales on Black Friday rose 2.5% from last year, according to Mastercard SpendingPulse, which measures sales in stores and online. The result was helped by gains in purchases of jewelry and apparel as well as spending on sporting events and at restaurants. Foot traffic at U.S. retailers rose 2.1%, with health and beauty brands seeing double-digit-percentage increases from last year, according to store traffic analytics provider RetailNext. (…)

Retailers are bracing for more hits to credit-card revenue. The CFPB has proposed a rule to cap late fees for missed monthly payments at $8, compared with $41 currently. If adopted, the cap could save American families as much as $9 billion a year in late fees, according to the CFPB. The rule would apply to all credit cards, not just store cards. (…)

While buy now, pay later options are still nascent, they are growing. The practice is a modern take on old-fashioned layaway plans and lets shoppers get the goods up front but make interest-free payments over time, usually in four installments over six weeks. (…)

Overall, the services are still a small part of spending; they accounted for 7.6% of all online sales from January through October. (…)

• Black Friday Finds Picky US Shoppers Waiting for Bigger Bargains Consumers holding out for deeper discounts threaten earnings

(…) While estimates on brick-and-mortar Black Friday sales won’t be available for some time, Salesforce Inc. expects online US sales to grow 1% in November and December versus a year earlier, which would be the slowest growth in at least five years. Sales were in line with that figure on Thanksgiving Day and appeared to pick up speed on Black Friday, the software company said. (…)

Other data companies are forecasting a similarly sluggish holiday shopping season. Adobe Analytics expects online revenue growth in the US during the next two months to be 4.8% versus a year earlier. While that’s a faster pace than last year, it’s well below the average annual rate of 13% growth before the pandemic. Mastercard, meanwhile, sees US retail sales online and in-store up 3.7% this year versus last. That’s back to the pace of pre-pandemic growth. (…)

China Investors Face Tens of Billions in Losses Over Zhongzhi

As China’s embattled shadow banking giant Zhongzhi Enterprise Group Co. faces a criminal probe, lawyers and analysts are assessing the damage to investors. One estimate puts that at about $56 billion.

More than three quarters of investor cash would be lost, with just 100 billion yuan ($14 billion) being recovered from debt of as much as 460 billion yuan, according to one scenario outlined by Ying Yue, a lawyer at Leaqual Law Firm in Shanghai. (…)

Authorities over the weekend said they’ve opened criminal investigations into the money management business of Zhongzhi, days after it warned of severe insolvency and revealed a shortfall of $36.4 billion in its balance sheet. (…)

The company first triggered concern in August after one of its trust affiliates failed to make payments to customers on high-yield investment products. (…)

Shadow banks like Zhongzhi often pool household savings to offer loans and invest in real estate, stocks, bonds and commodities. In recent years, even as rival trusts pared risks, Zhongzhi and its affiliates, especially Zhongrong International Trust Co., extended financing to troubled developers and snapped up assets from companies including China Evergrande Group.

Founded in 1995, Beijing-based Zhongzhi has expanded into a sprawling empire that had more than 1 trillion yuan in assets at its peak. The group holds shares in six licensed financial institutions including Zhongrong International Trust, five asset managers as well as four wealth management firms, according to its website. It also has controlling stakes in a string of listed firms across sectors from semiconductor to health and consumption.

• China Bank-Backed Dollar Bond Sales Plunge Amid Default Jitters Dollar bond sales with standby letters of credit slump 90%. Lenders reluctant to provide pledges as defaults mount

Cash-strapped Chinese borrowers are losing another funding avenue, as default jitters rock a market that relies on quasi guarantees from banks for repayment.

Sales of China dollar notes carrying a so-called standby letter of credit, effectively a lender’s pledge to repay if the issuer can’t, slumped 90% to $1.04 billion so far this year from the previous year, according to Bloomberg-compiled data. This outpaced a 52% drop in China dollar bond sales to $52.2 billion for the same period, the data showed.

With the nation’s developers going through a fresh round of crises and even large builders defaulting, banks are reluctant to provide such pledges. Investors also have doubts over the structure, which falls short of being an explicit repayment guarantee. That’s upended a market that helped lower-rated companies, including local government financing vehicles, raise a record $10.3 billion in 2022. (…)

• CHINA IMPLODING? NO, EXPLODING!

BLACK FRIDAY SALE!

Every service I subscribe to is currently offering Thanksgiving discounts.

Seeking to better my “competition”, after 15 years, here’s the first ever Edge and Odds Thanksgiving sale.

Any new or existing subscriber, any new reader or non-reader, even anybody with zero interest in the blog, will get 50% off the regular price which, remarkably, has not changed in 15 years!

This offer will remain valid until next Thanksgiving and will be retroactive to January 3rd, 2009, the launch date, even for those who found me later, or never found me.

And for my numerous non-American readers, for fairness sake, they will be allowed to apply the very same discount, no discrimination, during any other holiday period of their choice, valid until any other holiday period of their choice, and retroactive as far back as they wish.

To take advantage of this offer, simply do nothing. The discount will be automatically applied to your account, even if you don’t have one.

Please allow a reasonable number of days, weeks or months. We have been short-staffed here since day one.

The problem is that I only hire on a profit-sharing scheme and that has yet to appeal to anybody since I still refuse to embellish the blog with ads and pop-ups.

*****

My real Thanksgiving!

Sincere thanks are hereby given to all of you who have helped the blog with donations, large or small, occasional or regular.

I truly appreciate your mark of appreciation and altruistic generosity given that you are a minority helping all Edge and Odds readers.

Getting older, slower and sloppier, busy with 5 children and 11 grand-children, some in other biz with me (or rather me with them), and being short-staffed for reasons given or not above, I often cannot find the time/energy to send a thank you note. I apologize and I will try to improve on that even though I know I should not commit to that.

Rightly or wrongly, I always decide to work on the blog rather than use time to send thank you notes.

But here it is: Marc, Larry, Rick, Patrick, Joseph, Denis, John, Steven, Richard, David, just to name some of the recent donators, I hereby sincerely thank you all and salute your generosity.

To all other free riders, thank you for reading me, a very nice compliment in itself.

Denis

Breaking News!

Sincere thanks to Jack and Eric. Truly appreciated!

*****

FLASH PMIs

Eurozone: Employment falls for first time in almost three years as eurozone downturn continues

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index posted 47.1 in November to signal a sixth consecutive monthly reduction in business activity across the euro area’s private sector. Although solid, the rate of contraction eased from that seen in October, when the headline index had been at a near three-year low of 46.5.

Manufacturing production was down for the eighth month running, and at a rapid pace, albeit one that was the least marked since May. Meanwhile, services activity decreased for the fourth successive month, but at a modest and softer pace.

The overall reduction in business activity was again mainly a symptom of falling new orders. As has been the case in each month since June, companies in the eurozone reported a decline in new business. The latest reduction was marked, but the softest in four months amid weaker falls in both manufacturing and services. New export orders, including intra-euro area trade, continued to decrease rapidly.

With new orders down, companies again depleted their outstanding business midway through the final quarter. Backlogs of work decreased for the eighth month running, and at a marked pace that was only slightly weaker than that recorded in the previous survey period.

The fall in employment was the first in just under three years, but only marginal. The overall reduction was driven by manufacturing where jobs were cut to the largest extent since August 2020. In contrast, service providers continued to expand their staffing levels. That said, the rate of job creation in services was slight and the slowest in three months.

As well as scaling back employment, manufacturers also cut their purchasing activity rapidly and lowered inventories of both purchases and finished goods. The current sequence of falling input buying has now been extended to 17 months. (…)

Eurozone companies recorded a further increase in input costs, often as a result of higher wages in the service sector. The overall rise was the fastest since May and broadly in line with the average since the series began in 1998. (…) While services input prices continued to increase rapidly, a further sharp decrease in input costs was seen in manufacturing, with the pace of reduction marginally quicker than that seen in October.

These divergent trends were also evident with regards to selling prices, which increased in services but fell in manufacturing. Factory output prices were down for the seventh straight month as firms passed on cost savings to customers amid sharply falling demand, while services charge inflation intensified to a three-month high. Overall, output prices increased solidly in November, with the rate of inflation ticking up from October.

The Eurozone economy is stuck in the mud. Over the last four to five months, the manufacturing and services sectors have both been experiencing a relatively constant contraction pace. Considering the flash PMI numbers for November in our nowcast model indicates the potential for a second consecutive quarter of shrinking GDP. This would align with the commonly accepted criterion for a technical recession.

• KKR’s Henry McVey on Europe:

Across much of Europe, we continue to expect slow growth and/or another stalls-peed recession in the coming quarters.

  

(…) Overall, we expect some economic normalization between the U.S. and Europe in 2024. Simply stated, the U.S., with its huge fiscal impulse (which is why its ratings are falling) is probably over-earning at the same time that Europe is under-earning.

Indeed, the U.S. fiscal impulse has driven what appears to be an unsustainable gap in consumption between it and Europe in recent quarters. We expect this gap to narrow next year.

However, it is not just that the U.S. faces tougher year-on-year growth comparisons. Rather, we now think that Europe will begin to spend more of its excess savings, as falling inflation supports real disposable income and monetary policy potentially becomes less restrictive (see below on rates). In addition, job growth remains solid, and vacancy rates (the number of job vacancies over current employment) are at three percent in the Eurozone (vs. a long-term average of 1.7%), hovering just off highs since the data began to be tracked in 2004.

That said, there are some more structural forces at work that are denting longer-term business pyschology in Europe. In addition to higher rates and higher fuel costs in a country like Germany (which over indexed to natural gas versus nuclear under former Chancellor Merkel), Europe’s industrial sector is also feeling the structural slowdown that China is experiencing, as Chinese nominal GDP growth dips by two-thirds to seven percent, from 21% just a few years ago.

Unfortunately, this overhang will not likely reverse course overnight. Meanwhile, NIMBY (not in my back yard) attitudes and regulations are slowing the pace of development in key European real estate markets and infrastructure development projects.

Finally, unlike in 2011 (when I joined KKR, and most governments were strong majorities that could get legislation through with minimal resistance), politicians today in Europe are hamstrung by coalitions that are deeply divided on key issues such as immigration, Russia/Ukraine, taxes, and labor representation.

Importantly, Germany is not alone. Several of the traditional steady growers across the region, including the U.K. and Netherlands, will need to overcome a sluggish global economy and continued high energy and other input costs amid high inflation. At the same time, the Nordic region is still feeling the adverse effect of over-stimulating its housing market.

By comparison, we see countries such as Spain and Greece, which were much maligned during the 2011 austerity campaign in Europe, actually performing better this cycle (helped by Europe’s Recovery and Resilience Facility).

Central Bank Policy

While the Bank of England will likely not tighten further, it may also not be able to cut rates too quickly, either. The exit of 55+ year-old workers from the labor force post-COVID, less dynamic immigration, and higher input costs have led to a meaningful negative supply shock with inflationary implications.

So, consistent with this, Huw Pill, the Bank of England’s Chief Economist, has said that UK policy rates may follow a Table Mountain path (a reference to the long flat mountain overlooking Cape Town, South Africa) pointing to a higher for longer approach, as opposed to a Matterhorn-type interest rate cycle (quick acceleration up followed by rapid rate cuts on the way down).

Meanwhile (and on a more positive note), it does feel like the ECB could turn more dovish faster than in the United States or in the United Kingdom. President Lagarde has noted that one of her key indicators that track what she calls persistent inflation is improving, and in fact has already fallen back to 2.1%.

True, this measure of inflation excludes volatile components like food and energy, but this suggests we are potentially returning to a point where the ECB needs to weigh the weakening core inflation measures as much as the volatile headline measures. As such, we would not be surprised to see the ECB easing as soon as the second quarter of 2024. (…)

The European macro and market environment remains highly complex, harking back to the ‘Adult Swim Only’ days of 2016. Simply stated, now is not the time to make a macro bet on a sharp recovery in Europe; it is unlikely to come through, despite what we believe will be a more dovish ECB in 2024.

Japan: Private sector activity stalls in November

The headline au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index™ (PMI)® fell from 48.7 in October to 48.1 in November to the strongest deterioration in Japanese manufacturing business conditions since February.

Both output and new orders were scaled back further in the latest survey period, with the rate of reduction in incoming business accelerating slightly on the month.

In line with the trend for new orders, pressure on capacity continued to ease as signalled by the strongest decrease in backlogs for eight months. In turn, Japanese manufacturers reduced staffing levels for the second successive month.

The au Jibun Bank Flash Japan Services Business Activity Index was little-changed at 51.7 in November, following a final reading of 51.6 in October. This signalled a sustained yet modest expansion in business activity in Japan’s service sector, which was the second-weakest recorded in 2023 to date.

The pace of expansion in incoming business picked up slightly midway through the fourth quarter, and was also modest overall. Moreover, November data indicated renewed pressure on capacity, as outstanding business rose at the steepest rate in five months.

Firms also signalled the strongest degree of positive sentiment regarding the year-ahead outlook for activity since August. Meanwhile, the pace of input cost inflation eased to the softest since the start of 2022.

The U.S. flash PMI is out later today.

Canada’s Real-Estate Market Stumbles as Rate Hikes Bite Stall in new-build condominium market is likely to have far-reaching implications for Canada’s economy

Several major real-estate developers are defaulting on loans, buyers are having trouble closing on units, and dozens of condominium projects are being shelved. The effects could linger for years, turning housing, once the engine that drove the Canadian economy, into a brake that stalls growth, say developers, real-estate brokers and economists.

“It’s bad,” said Daniel Foch, a Toronto-based real-estate broker and analyst. “The people who are losing are losing really, really big.” (…)

According to Urbanation, a Toronto-based real-estate-research firm, sales of new-build condominiums, which had been going up and being sold at a breakneck pace around the city in recent years, hit a nearly 20-year low during the third quarter of the year. Forty projects that were expected to launch this year remain stalled as developers wait for conditions to improve, said Shaun Hildebrand, Urbanation’s chief executive. In healthier markets, it is rare to see any developments pause, he said. (…)

In Vancouver, another Canadian market where housing prices had skyrocketed, more properties are being listed, while sales have fallen. Sales were 30% below their 10-year average, “which tells us that demand is not as strong as we might expect this time of year,” said the Real Estate Board of Greater Vancouver. Benchmark prices in October fell 1.2% in Vancouver compared with the prior three months, but rose 4.4% from a year ago, according to the real-estate board.

The Toronto Regional Real Estate Board reported in October that third-quarter condominium listings jumped 29% from a year ago, while sales rose only 6.2%. Average prices fell 0.5%.

Canada relies heavily on its real-estate sector to power the economy. Housing investment in Canada as a share of gross domestic product reached 8.9% in 2022, according to the Organization for Economic Cooperation and Development, much higher than the 4.8% on average for the 38 member countries in the OECD. (…)

Mark Morris, a real-estate lawyer who oversees title transfers between buyers and sellers, said an increasing number of people are trying to unload new-build condo units they agreed to buy years ago but are only now closing. The value of the condo projects has fallen, putting buyers “underwater,” meaning the value of their mortgage is less than what they agreed to pay for the unit and they can’t make up the difference. In some cases, buyers are simply defaulting on their deals. (…)

According to the Canadian Real Estate Association, home prices have risen more than 7% since January, although they are down almost 20% from their peak in February 2022. (…)

Canada’s housing agency estimated in a report this month that homeowners will need to renew a total of 675 billion Canadian dollars, or the equivalent of about $490 billion, of mortgage loans in 2024 and 2025. Those renewals will cause monthly mortgage payments to rise between 30% to 40%, equal to about 15 billion Canadian dollars a year diverted from consumption and savings toward debt repayment. (…)

• Canada: Home sales plummet in October as affordability remains an issue (NBF)

On a seasonally adjusted basis, home sales dropped 5.6% from September to October, a fourth monthly contraction in a row and the sharpest slowdown in sales since June 2022. On the supply side, new listings decreased 2.3% in October, a first decline in seven months.

Active listing increased by 4.6%, a fourth monthly gain in a row. As a result the number of months of inventory (active-listings to sales) increased from 3.7 in September to 4.1 in October and is now roughly back in line with its pre-pandemic level.

China Weighs Unprecedented Builder Support With First-Ever Unsecured Loans Officials are making most forceful push yet to end debt crisis

As part of a package of new measures to backstop the real estate industry, regulators are considering allowing banks to issue so-called working capital loans to some developers, the people said, asking not to be identified discussing a private matter. Unlike other types of loans available to builders that typically require land or assets as collateral, the new financing facility would be unsecured and available for day-to-day operational purposes, potentially freeing up capital for debt repayment, the people said. (…)

Implementation would require regulators to exempt bankers from being held accountable for possible bad loans given the high risks involved, the people said, adding that deliberations are ongoing and subject to change.

If the support measures are approved, they would represent China’s most forceful attempt yet to plug an estimated $446 billion shortfall in funding needed to stabilize the industry and deliver millions of uncompleted homes. President Xi Jinping is also stepping up support for the broader economy, with moves this week indicating increased urgency to stop a downward spiral in the property sector from derailing growth and endangering financial stability. (…)

China’s $57 trillion banking industry has already been battling with shrinking margins and record pile of souring loans as authorities have steadily increased pressure on lenders to shore up the economy and the property sector. Net interest margins at commercial banks dropped to a record 1.73% at the end of September, below the industry’s 1.8% threshold seen as necessary to maintain a reasonable amount of profitability. (…)

At a meeting with top financial regulators last Friday, China’s biggest lenders, brokerages and distressed asset managers were told to meet all “reasonable” funding needs from property firms.

EARNINGS WATCH

Pre-announcements are just about in line with Q3 but are much worse than during Q4’22 at the same time.

In the past 2 weeks, 14 of the 20 new pre-announcements were negative and 5 were positive, a 2.8 N/P ratio. Last week, all 7 were negative.

Q4 estimates are now +5.4% vs +11.0% on Oct.1.

Q1’24 are +8.0% vs +9.6%.

Trailing EPS are now $218.73. Full year 2023e: $220.48. Forward 12m EPS: $235.82e. Full year 2024: $245.00e.

American Dream Slips Out of Reach for Most Voters A WSJ/NORC survey offers the latest evidence that Americans are feeling economically fragile and uncertain that the ladder to higher living standards remains sturdy.

Only 36% of voters in a new Wall Street Journal/NORC survey said the American dream still holds true, substantially fewer than the 53% who said so in 2012 and 48% in 2016 in similar surveys of adults by another pollster. When a Wall Street Journal poll last year asked whether people who work hard were likely to get ahead in this country, some 68% said yes—nearly twice the share as in the new poll. (…)

Half of voters in the new poll said that life in America is worse than it was 50 years ago, compared with 30% who said it had gotten better. Asked if they believed that the economic and political system are “stacked against people like me,” half agreed with the statement, while 39% disagreed.

The American dream seemed most remote to young adults and women in the survey. Some 46% of men but only 28% of women said the ideal of advancement for hard work still holds true, as did 48% of voters age 65 or older but only about 28% of those under age 50.

People in both political parties reported a sense of precariousness and disaffection. (…)

The new survey adds to signs of pessimism found in other recent polls. An NBC News survey released this month found that 19% felt confident that life for their children’s generation would be better than for the current one—a record low in the group’s surveys dating to 1990. (…)

Some 35% of voters said they rated the economy as excellent or good, an improvement from the 20% who said so in March and 17% in May of last year. The share rating the economy as “not so good” or poor fell to 65%, compared with 80% or more in the prior two surveys. (…)