Happy and Healthy New Year
Posted December 30: THE RULE OF 20 STRATEGY GOES ALL CASH
DECEMBER MANUFACTURING PMIs
USA: Manufacturing output continues to recover amid further new order growth
December data pointed to a further recovery in operating
conditions across the U.S. manufacturing sector. The sustained
improvement was supported by a solid rise in new business and
a further upturn in production. Output expectations remained
historically muted, however.Meanwhile, rates of both input price and output charge inflation
quickened amid higher cost burdens and the ongoing impact of
tariffs.The seasonally adjusted IHS Markit final U.S. Manufacturing
Purchasing Managers’ Index™ (PMI™) posted 52.4 in December,
down slightly from 52.6 in November and in line with the flash
figure. The latest data indicated a modest improvement in the
health of the U.S. manufacturing sector. The final quarterly
average of 2019 was in fact the strongest since the opening
three months of the year.
Output growth across the sector softened from November’s
recent peak, but was moderate nonetheless. The expansion was
linked to greater client demand and a rise in new order volumes.
The rate of increase was still well below those seen at the end of
2018, however.New business received by manufacturing firms grew at a solid
rate in December, and one that was the second-strongest
since April. The sustained rise in client demand was partially
attributed to the acquisition of new clients and reviving export
sales. Goods producers reported a third consecutive upturn in
new export orders.The overall rate of expansion nevertheless faltered somewhat
in December and remains well below that seen this time
last year, suggesting producers are starting 2020 on a softer
footing than they had enjoyed heading into 2019.On the price front, cost burdens rose at a solid pace at the end of
the fourth quarter. The rate of input price inflation accelerated
to a nine-month high as firms stated that higher supplier costs
and tariffs had driven prices up.The pace of output charge inflation also quickened to the joint-fastest since February and was solid overall. Companies commonly attributed the rise to the partial pass-through of
higher costs on to clients.Despite an increase in client demand, output expectation
towards the coming year remained relatively muted at the end
of 2019. Nonetheless, the degree of confidence picked up from
that seen in November, with optimism reportedly stemming
from new product development, new client wins and investment
in new facilities.Meanwhile, a further upturn in new business drove firms to
expand their workforce numbers in December. Employment
growth was the second-fastest since May, with firms stating
the increase largely stemmed from greater production
requirements.Strain on capacity was also reflected in a further accumulation
of backlogs of work. That said, the rate of growth in the level
of outstanding business was only marginal and eased from that
seen in November.Finally, input buying rose for the third month running amid
efforts to stockpile raw materials. Post-production inventories
were little-changed, however, as sales from stock weighed on
growth.
China: Operating conditions improve again in December
The health of China’s manufacturing sector continued to improve in December, with firms registering a further strong rise in output. However, the rate of new order growth eased to a three-month low, and export sales rose only slightly. At the same time, confidence towards the 12-month business outlook remained relatively weak, and staffing numbers stagnated. Nonetheless, a further rise in new work prompted firms to expand their purchasing activity and inventories, which in turn placed further strain on supply chains. Operating expenses rose for the fourth month in a row, albeit marginally, which underpinned a renewed increase in selling prices.
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) posted 51.5 in December, down from 51.8 in November. The latest figure remained consistent with a modest improvement in the health of the sector, with conditions now strengthening in each of the past five months. That said, the latest PMI reading was the lowest seen since September.
Weighing on the headline index was a softer upturn in total new business at the end of the year. The rate of new order growth was modest, having eased to a three-month low. Panel members suggested that demand both at home and abroad had improved, though export work continued to rise only slightly overall.
Domestic demand expanded, but less quickly than in the previous two months. While the subindex for total new orders fell further in December from its high in October, the gauge for new export orders fell more slowly, suggesting growth in domestic demand is slowing more rapidly.
The sustained rise in new orders underpinned a further increase in production volumes during December. The rate of expansion remained strong overall, despite edging down for the second month in a row.
Staffing levels were unchanged in December, as a number of firms mentioned efforts to contain costs and boost efficiency. As a result, the level of outstanding business rose again, albeit at a weaker pace.
Purchasing activity rose for the sixth month in a row, though the rate of growth cooled from November. This, in turn, led to an increase in inventories of purchased items. Inventories of finished goods also expanded at the end of the year, which some companies linked to expectations that demand conditions will improve in the months ahead.
Firmer demand for inputs placed further pressure on supply chains, with average lead times for purchased items lengthening again in December.
At the same time, manufacturers registered a further rise in operating expenses, which was attributed to greater raw material and staffing costs. However, the rate of input price inflation was marginal and much softer than the series average. Nonetheless, the further increase in costs led companies to raise their selling prices for the first time since June, and at a modest rate.
Although Chinese goods producers generally expect output to rise over the next year, concerns over ongoing trade tensions, environmental protection policies and intense market competition meant that overall sentiment remained weaker than the historical trend.
Eurozone: Manufacturing downturn deepens during December
Having reached a three-month high in November, the
IHS Markit Eurozone Manufacturing PMI® lost
momentum in December. Posting 46.3, down from
46.9 but slightly better than the earlier flash reading of
45.9, the PMI remained below the crucial 50.0 nochange
mark for an eleventh successive month.
Highlighting the continued underlying weakness in
sector performance, the PMI averaged 46.4 in the
final quarter, unchanged on the previous quarter’s
near seven-year low.Market groups data indicated that manufacturing
underperformance was centred on the intermediate
and investment goods sectors, with the respective
PMIs remaining well inside negative territory.
Conversely, marginal growth was recorded in the
consumer goods category for the first time since
August.
There was a broad-based softening of PMI figures during December, with seven of the eight countries covered by the survey recording weaker PMI numbers compared to November (the exception being Austria,
which registered an unmoved reading).Germany was again the weakest-performing country,
whilst the deteriorations seen in Italy and the
Netherlands were the sharpest in over six-and-a-half
years. Conversely, growth was sustained to a solid
degree in Greece, whilst a marginal gain was seen in
France.Both production and new orders continued to
deteriorate markedly during December. Latest data
showed output falling for an eleventh successive
month and at a rate that matched September’s 81-
month record. Levels of incoming new work also fell
at a sharper rate. That was despite the weakest
reduction in new export sales since the start of the
year.With new work continuing to fall, manufacturers were
again able to make notable inroads into their existing
contracts. Backlogs of work declined for a sixteenth
successive month, and at a faster rate compared to
November. Spare capacity subsequently weighed on
employment, which declined during December for an
eighth successive month. Moreover, the rate of job
losses was the sharpest recorded by the survey since
the start of 2013. In line with recent trends, job
shedding remained centred on Germany. Greece, in
contrast, saw strong employment growth, with France
the only other country not to record lower employment
during the month.Further evidence of general manufacturing
retrenchment was provided by purchasing and
inventory data. The volume of inputs bought by
manufacturers declined during December for a
thirteenth successive month, whilst inventories of both
inputs and finished goods continued to fall.With demand for inputs deteriorating, supplier delivery
times again improved to a historically marked degree
at the end of 2019. Vendor performance has now
strengthened for ten months in succession.
Further highlighting supply-side slack was a further
fall in input prices, the seventh in consecutive months.
Although the weakest since September, deflation
remained marked and provided further room for
manufacturers to lower their own charges. Latest data
showed output prices falling again in December, as
they have done in each month since July.Finally, confidence about the future continued to
steadily improve at the end of 2019. Having hit its
lowest in over six-and-a-half years during August,
expectations about output strengthened to a six month
high during December. Except for France and
Greece, sentiment improved across the region.The survey is indicative of production falling by
1.5% in the fourth quarter, acting as a severe drag
on the wider economy. (…)Only households provided any source of improved
demand in December, underscoring how the
consumer sector has helped keep the economy out
of recession in recent months. The ability of the wider
economy to avoid sliding into a downturn in the face
of such a steep manufacturing contraction remains a
key challenge for the eurozone as we head into
2020.
U.S. Initial Claims for Unemployment Insurance Edge Down by 2,000
Initial claims for unemployment insurance decreased 2,000 in the week ended December 28 to 222,000 (-3.9% y/y) from the prior week’s 224,000, which was revised upward by 2,000. The four-week moving average of initial claims rose to 233,250 from 228,500. (…)
The 4-w m.a. has crossed above its 2-year range…
