Japan economy

GREEN SHOOTS IN MANUFACTURING

From today’s manufacturing PMIs:

• JAPAN MANUFACTURING PMI RISES ON IMPROVED ORDERS
• CHINA MANUFACTURING PMI EDGES UP ON HIGHER EXPORT ORDERS
• EUROZONE MANUFACTURING PMI UP BROADLY ON RISING ORDERS

The big boys look stronger but other country PMIs were more mixed however:

• India: New business from abroad increased further in November. Although only slight, the rate of growth was the strongest in three months.
• South Korea: new orders declined during the month, albeit at a weak rate. Furthermore, the rate of contraction was the slowest in the current nine-month period of decline. Contributing to the fall in total new work was a drop in international demand, as new export orders decreased at the sharpest rate since June. A number of surveyed companies mentioned challenging global economic conditions, while some highlighted a fall in trade volumes with China and Europe.
• Manufacturers in Taiwan saw a further fall in total new work in November. That said, the rate of reduction was the slowest seen in six months and only modest. Data suggested that softer demand from overseas was a key factor weighing on new order books. This was highlighted by a solid fall in total new export work, with the rate of decline accelerating since the previous month.
• Vietnam: New orders decreased for the third month running in November, albeit slightly.
• Indonesia: Incoming new orders received by Indonesian goods producers decreased again during November.
• Malaysia: marked fall in new work intakes. In fact, the rate of decline was the quickest in the series history to date. Data suggested that the main driver behind the fall in total new orders was poor domestic demand, as new exports increased during November.
• Russia: Incoming new orders rose further in November, with the rate of growth quickening to a one-year high. However, the rise was centred on the domestic market, as new export orders contracted.
• U.K.:  rising levels of incoming new business.
• Canada: A slight rebound in new export sales

Online Holiday Sales Hum But Order Sizes Shrink

(…) Overall, Black Friday shoppers still spent more than last year. According to First Data, the number of transactions on Thursday and Friday increased 10.6%, which helped sales rise 9.4% on those days despite the smaller ticket sizes for some categories.

Spending per shopper at U.S. specialty and big box chains fell 1.4% on Thursday and Friday, according to RetailNext, which collects traffic and sales data through analytics software it provides to retailers.

Likewise, International Business Machines Corp. found the average order at online retailers who use its software fell 1.2% on Black Friday and was on track to fall more than 4% on Cyber Monday as of midafternoon, though order values rose 5.5% on Saturday and Sunday. (…)

Items from televisions to tablets are suffering from price deflation, analysts said. For example, Sony Corp. cut the price of its PlayStation 4 console by $50 in October to $350, but Best Buy Co. and other retailers were selling it this weekend for $300 with a free game. Even new products were being discounted: Amazon.com Inc. sold its $50 Fire tablet for $35 on Black Friday.

Craig Johnson, the president of consulting firm Customer Growth Partners, said unit sales in consumer electronics are up, but dollar sales are down about 1% to 2% because of price deflation. (…)

Toys are on track to have one of their best seasons in years, thanks in part to the popularity of “Star Wars” items. And the average purchase for clothing and accessories increased slightly on Thursday and Friday to $81.60 from $79.40 a year ago, according to First Data.

Non-retail categories such as airfare and train tickets also showed declines as shoppers opted to take advantage of cheap gas prices and drive to their destinations, First Data’s Mr. Mantripragada said.

U.S. Pending Home Sales Improve

The National Association of Realtors (NAR) reported that pending sales of single-family homes gained 0.2% during October (2.1% y/y) following a revised 1.6% September drop, initially reported as -2.3%. Sales remained 4.1% below the peak level reached in May. Expectations were for a 1.0% increase according to Bloomberg.

Sales results varied around the country last month. In the Northeast, sales increased 4.5% (4.6% y/y) and made up October’s decline. In the West, they rose 1.7% (6.4% y/y) to the highest level since June 2013. Sales in the South moved 1.7% lower (-0.9% y/y) and were down 8.3% from the peak six months ago. In the Midwest, sales fell 1.0% (+1.4% y/y) and were 7.3% below the April high.

Ford Says Increase in Labor Costs Will Be Less Than Inflation Ford said its labor costs will grow less than 1.5% annually over the next four years under a new labor agreement with the United Auto Workers union.

Ford executives, speaking  during a conference call on Monday, said costs for workers represented by the United Auto Workers will rise less than 1.5% annually through 2019, including a $600 million charge booked in the fourth quarter to cover $10,000 signing bonuses. Still, Ford’s average hourly labor costs will be about $8 to $10 higher than at U.S. factories owned by foreign rivals.(…)

The No. 2 U.S. auto maker said the new deal offers flexibility on costs, pointing to why the company and its Detroit rivals agreed to auto-workers contracts that the UAW initially billed as being among the richest in history.

Ford will use significantly more lower-paid temporary workers and schedule more mandatory overtime, executives said, moves to reduce the need for expensive full-time employees being added to the payroll. (…)

Ford’s hourly labor and benefit costs are expected to rise to $60 in 2019 with the new contract, up from $57 under the prior agreement, according to a joint forecast provided by  Kristin Dziczek and Art Schwartz, president of consultants Labor & Economics Associates. That’s far above Toyota Motor Corp.’s average U.S. labor rate of $48 an hour.

GM’s hourly labor cost will rise to $60 from $55 over the next four years, the researchers estimate. Fiat Chrysler will see the biggest jump in average hourly labor costs, rising to $56 from $47 over the next four years. (…)

Ford, for instance, said the agreements give more flexibility to move production outside the U.S., indicating more small-car manufacturing will relocate to lower-cost countries like Mexico.

Such moves could generate significant savings with Mexico’s labor costs being about one-fifth of the wages auto workers earn in the U.S., according to labor experts. “We’re not restricted from sourcing products anywhere in the Ford world,” Chief Executive Mark Fields said. (…)

German Unemployment Rate Falls to Record Low on Domestic Demand

Italy Unemployment Rate Drops To Lowest Since December 2012 

India’s economy grew by 7.4%, year-on-year, in the three months to September, up from 7% in the previous quarter—slightly faster than most forecasts and faster than China’s recent pace. The Reserve Bank of India kept interest rates at 6.75% today, having made a surprise half-point cut at its previous meeting, in September.

Japan’s IP Marks a Strong October Gain

Japan’s industrial production index rose by 1.4% in October, pushing the three-month growth rate up to 5.4% annual rate. Manufacturing now has two consecutive monthly gains of more than 1%. Still, growth is negative on balance over six months and weak over 12 months. Back-to-back monthly strength may not be decisive. Despite two previous monthly gains in textiles of 1%, textile output collapsed in October; that sector shows shrinking output up and down the timeline. If October marks a change in direction for output, we cannot see it in the trends yet.

Manufacturing output is up at a 4.6% pace over three months, shrinking over six months, and up by 0.2% over 12 months. By product group, consumer goods output remains strong. Output in that sector rose by 2.8% in October and is rising at a 14.1% annual rate over three months and clearly accelerating from 12 months to six months to three months. But the consumer goods sector is the lone bright spot. Investment goods output is shrinking at a steady 2% pace over all horizons, despite a sharp rise of 4.8% in October. Intermediate goods output has been running hot and cold over the last three individual months. But over that span as a whole, there is a strong 5.5% annual rate gain. Yet, that gain juxtaposes to a 3.4% rate of decline over six months and a drop of 0.7% over 12 months.

OPEC November oil output rises, led by Iraq, Saudi Arabia: survey

(…) OPEC supply has risen in November to 31.77 million barrels per day (bpd) from 31.64 million in October, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. (…)

Saudi output, at 10.25 million bpd in this survey, is not far from the record high of 10.56 million bpd it pumped in June. (…)

China Joins World’s Elite Currency Club China notched an economic milestone Monday, with the International Monetary Fund adding the yuan to its elite basket of reserve currencies, a move designed to spur greater liberalization in the world’s No. 2 economy.

The decision—effective next October—confers international status on China’s currency as the government starts to ease restrictions on its rigidly controlled exchange-rate and financial system. It also marks the start of a potentially more perilous course for China. A more freely traded yuan and open markets, down the road,could add volatility to China’s trade pictureand raise the risk of capital flight.

The IMF’s decision will eventually put the yuan alongside the dollar, euro, pound and yen in the fund’s reserve-currency basket, with the IMF giving more weight to China’s currency than to either the yen or pound. (…)

The country now accounts for more than 15% of the global gross economic output, nearly triple what it was a decade ago. (…)

Still, inclusion of the yuan in the IMF basket is in large part symbolic. The IMF uses the reserve basket to denominate its emergency loans, not to create an internationally traded asset. (…)

After the IMF’s announcement, China’s central bank pledged to accelerate efforts to overhaul the country’s financial system, further open its markets and keep the yuan largely stable.

Inclusion of the yuan “means the international community expects China to play a more active role in global economy and finance,“ the People’s Bank of China said. ”China will speed up the effort to promote financial reforms and opening.” (…)

(Bespoke Investment)