Chicago Fed National Activity Index Declines
The Federal Reserve Bank of Chicago reported that its National Activity index fell to -0.45 during April, after rising to 0.05 in March. Remaining negative was the three-month moving average, declining to -0.32, its lowest point since May 2016. During the last ten years, there has been a 31% correlation between the Chicago Fed Index and the q/q change in real GDP.
The National Activity Index Diffusion Index, which measures the breadth of movement in the monthly series, deteriorated to -0.22. That was the lowest level since October 2016, down from the peak of 0.37 in December 2017.
Deterioration in the April index was led by the Production & Income series to -0.44, the lowest level since May of last year. The Personal Consumption & Housing reading was negative, though not by as much as in recent months. The Sales, Orders & Inventories figure eased m/m to a fairly neutral reading. The Employment, Unemployment & Hours series improved slightly m/m and has been rising since December.
The CFNAI is a weighted average of 85 indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.
Americans’ View of Job Market Hits New High
(…) The longer-term picture shows that Americans’ positive perceptions of both the economy and the job market are substantially improved today over the prior decade, particularly from 2008 through 2011, as the country was entering and then recovering from the recession and global financial crisis.
Notably, perceptions that the job market is good have improved more sharply than overall perceptions that the economy is in excellent or good shape, suggesting that other aspects of the economy are more troublesome in Americans’ minds, perhaps involving wage growth or trade — issues that continue to garner media attention.
U.S. Plans Temporary Exemptions to Huawei Blacklist Reprieve, which could ease U.S.-China tensions, will ensure operations of existing networks
U.S. officials said Monday they would grant a handful of temporary exceptions to an export blacklist against Huawei Technologies Co., giving some suppliers and customers of China’s telecom giant a 90-day reprieve from tough trade penalties.
In an order scheduled to be published on Wednesday, the Commerce Department said it would grant a temporary license for U.S. exports to Huawei and dozens of its affiliates. (…)
The temporary reprieve isn’t a huge positive for Huawei, but it does give U.S. businesses some time to get their affairs in order, said Michael Allen, a managing director at Beacon Global Strategies LLC, which is advising clients on the issue. “It’s a temporary stay of execution,” he said. (…)
“The current actions by American politicians underestimated our power,” [Huawei CEO] Mr. Ren said. “In the 5G technology front, others definitely won’t catch up with Huawei for another two to three years.” (…)
U.S. Slows Hiring of Chinese Nationals by Chip Makers The U.S. has sharply slowed approvals for the nation’s semiconductor companies to hire Chinese nationals for advanced engineering jobs, according to industry insiders, limiting access to talent.
(…) It is significant in part because Chinese nationals account for a large share of non-U.S. citizens hired for such technical roles, where the talent supply domestically is often scarce. (…) The slowdown cuts across industries but is especially troublesome for chip makers, as the pool of people capable of doing highly technical engineering work is shallow, industry insiders say. (…)
Foreign-born engineers have been important to chip-company staffing over the years, said Linley Gwennap, president of the Linley Group, a Silicon Valley semiconductor research outfit. “The people from these countries have gone on to start companies in the U.S.,” he said. (…)
Further restrictions on deemed exports to China could be on the way next year, when the Commerce Department is to decide on definitions of new technologies subject to export controls. Those definitions could hit areas such as artificial intelligence, a huge focus for chip makers and tech companies but also a major area of U.S.-China technological competition. (…)
The Semiconductor Industry Association in January sent a letter asking the Commerce Department to fully consider the economic impact of the definitions and limit them to technologies with national-security concerns, not trade-policy concerns.
China Warns About ‘Unwavering Resolve’ to Fight U.S. ‘Bullying’
China could retaliate against the U.S. after President Donald Trump blacklisted Huawei Technologies Co., the Chinese ambassador to the European Union said. (…)
“This is wrong behavior, so there will be a necessary response,” Zhang Ming, China’s envoy to the EU, said in an interview in Brussels on Monday. “Chinese companies’ legitimate rights and interests are being undermined, so the Chinese government will not sit idly by.” (…)
“The U.S. government is trying to bring down Huawei through administrative means,” he said. (…)
He added that China would “make the best possible effort to defend the legitimate right and interests of Chinese companies” and urged Washington “not to go further down the wrong path, to avoid further disturbances to China-U.S. relations.” (…)
Chinese Airline Asks Boeing For Compensation Over 737 MAX Grounding The airline has also delayed delivery of future planes.
Xi Jinping visits China rare earth plant amid talk of use as trade war weapon Trip to Ganzhou includes stop at major producer of rare earths, minerals essential to some low-carbon technology and left off US tariffs list
(…) China is the world’s biggest producer and exporter of the minerals, many of which are vital to a low-carbon technologies.
Rare earths were among the few items excluded from US plans to put tariffs on almost all of China’s remaining exports to the United States, highlighting their strategic importance.
China accounts for 90 per cent of global production, but the government manages mining levels and it was reported last year that amid production quotas, the country became a net importer of rare earths last year.
Jin Canrong, a professor of international relations at Renmin University in Beijing, wrote an article last week suggesting that China could ban exports of rare earths to the US to punish the Washington for imposing additional tariffs. (…)
.Apple stock falls after HSBC warns of dual threats in China
(…) “We believe an escalation/elongation of the trade tension will likely have an impact on how Chinese consumers perceive U.S. branded products, chiefly iPhone and given that China plays a big role in terms of products and services revenue for Apple, this remains a key risk,” he said. (…)
A delicate balance – Toyota took care to make offering to U.S. before China deals
The automaker said it would establish a green-tech research institute with Tsinghua University and provide state-owned BAIC Group’s Foton unit with fuel-cell technology for buses. But before it could feel comfortable unveiling those plans, Toyota put in months of work to pledge fresh investment – in the United States.
The technology transfers represent gestures of goodwill to Beijing by the Japanese automaker, which wants to “step on the accelerator in China” as CEO Akio Toyoda told an internal management group, according to minutes of meetings on March 19 and April 23 viewed by Reuters.
Announcing U.S. investment first was a strategy Toyoda felt the company needed to pursue to avoid U.S. President Donald Trump’s wrath, the minutes showed – providing a rare window into how it has sought to tread carefully as the United States and China battle for investment, jobs and influence in the global economy. (…)
“It’s imperative to avoid making enemies.”
According to the April 23 minutes, the Japanese automaker is making what one unnamed senior executive described as a “significant move to steer its focus to China” (…)
Toyota has been at pains to show its commitment to the United States, and in the March 19 minutes Toyoda explained a fresh investment of $749 million in U.S. manufacturing capacity and jobs as “an essential” step before it could speed up efforts to expand in China.
Announcing the new investment on March 14, Toyota stressed the sum helped bump up a five-year investment pledge made in 2017 to almost $13 billion from $10 billion. (…)
Toyota has embarked on an expansion of its manufacturing muscle in China, with plans to add annual production capacity of 120,000 vehicles each at its Tianjin plant and at its Guangzhou plant.
It is also expanding distribution networks and is sharing technology to promote goodwill among Chinese leaders, Toyota sources have said. (…)
In contrast to the automaker’s efforts in the United States, Toyota is content to keep a relatively low profile with regards to its plans in China. Neither the Tianjin nor the Guangzhou plans were formally announced by Toyota. Investment amounts have also not been disclosed. (…)
Last Friday:
(…) In an unusually strong-worded statement, Japan’s largest automaker said Trump’s proclamation Friday that the U.S. needs to defend itself against foreign cars and components “sends a message to Toyota that our investments are not welcomed.” The company said it has spent more than $60 billion building operations in the country, including 10 manufacturing plants. (…)
The pushback by Toyota marks a break from years of attempting to work its way into Trump’s good graces. (…)
Meanwhile, China’s crucial housing market looks buoyant:
Homes sales continued to exhibit strength while excess bullishness in the housing market is not a cause for concern. Sales of new homes in China’s 30 major cities were seen notably higher than the same period last year. Land prices in 100 major cities saw a renewed surge. Home prices in 70 major cities continued their M/M increase in April, with 67 out of 70 cities reporting a M/M increase, hitting a four-year high. The real estate market continued to heat up, but regulators will continue to follow city-specific restrictions to prevent housing prices from seeing both considerable and immediate increases. (…) (CEBM Research)
Trade Disputes Are Weakening Future Growth, OECD Says Conflicts between the U.S. and its major trade partners have weakened business investment around the world, threatening to hamper future as well as current rates of economic growth, the OECD said.
(…) The OECD estimates that business investment will grow globally at an average rate of 1.75% this year and next, down from 3.5% in 2017 and 2018. It said lower spending on tools and equipment is contributing to a slowdown in trade flows, which it estimates flat lined in the first three months of the year. Capital goods account for a larger share of trade than they do economic output.
“It’s something that’s super worrying,” said Laurence Boone, the OECD’s chief economist. “The less we invest today, the more we will be missing in the future.”
In a quarterly report, the Paris-based research body lowered its growth forecast for the global economy this year, to 3.2% from 3.3% previously. That would mark a slowdown from the 3.5% expansion in 2018, and the 3.7% expansion in 2017. (…)
In its latest outlook, the OECD raised its growth projections for the U.S., the eurozone and the U.K., albeit slightly, and left its growth forecast for China unchanged, while slightly lowering its projections for Japan. In the U.S., it now expects to see economic growth of 2.8% this year, and 2.3% next, up from 2.6% and 2.2% respectively. (…)
The OECD said that, if kept in place, those new tariffs would shrink the U.S. and Chinese economies by 0.2% or 0.3% by 2021, while U.S. consumer prices would be 0.3% higher in 2020 than they would have been without the new duties. (…)
In a scenario where both the U.S. and China imposed 25% tariffs on all goods traded between them, the OECD said U.S. economic output would be lowered by 0.6%, and Chinese output by 0.8%, with other countries being hit to the degree that they export to the main participants. (…)
OECD calls on governments to loosen purse strings
‘Fragile’ growth remains heavily dependent on central banks
Too leveraged to tighten (IN GODS WE TRUST)
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Fed’s Powell Warns of Economic Risks From Rising Business Debt Federal Reserve Chairman Jerome Powell said financial regulators must take seriously potential dangers that rising levels of business debt pose to the U.S. economy but said some comparisons to last decade’s subprime mortgage bubble overstate the risks.
(…) Views about the risks from rising corporate borrowing “range from ‘This is a return to the subprime-mortgage crisis’ to ‘Nothing to worry about here,’” said Mr. Powell. “At the moment, the truth is likely somewhere in the middle.” (…)
“Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect,” he said. Not only are debt levels high, but recent growth has been concentrated in riskier forms of borrowing. (…)
If the economic and financial conditions deteriorated, overly indebted companies could face significant strains, forcing more layoffs and cutbacks in investment, which could make any downturn more painful, he said. “Investors, financial institutions and regulators need to focus on this risk today, while times are good,” Mr. Powell said. (…)
(…) It’s true that in the dot.com frenzy of the early 2000s, many tech companies posted losses while devouring loads of new funding. It was the hallmark of the era. But the big burners were such failures as Webvan and eToys.com, not triumphant survivors such as Google that launched in the same era. “It could be a matter of ‘survivor bias,’” says accounting expert Jack Ciesielski. “You’ve got these companies chewing through mountains of cash, and investors are comparing them not with the failures of the dot.com era who did the same thing, but with the survivors, who didn’t.” (…)
The comparison with the Fab Four doesn’t mean the big burners can’t eventually prove successful. It does mean that the established tech superstars followed a different path, and aren’t remotely a model for the Breakneck Burners. (…)
Now we’ve journeyed to the ledge, where the full chasm is coming into view. All told, the Fab Four had total negative free cash flow in their early years of almost exactly $1 billion, posted by just two companies, Amazon and Facebook. Those two lost significant amounts for a total of only five years.
The Breakneck crowd burned $23.8 billion in total, encompassing 23 years of FCF deficits. Even adjusted for inflation, considering that the Amazon shortfalls came in two decades ago, they’ve out-spent the Fab Four by a ratio of around 20 to 1. (…)
Ford to Cut Salaried Jobs by 10% Amid Global Restructuring
(…) Mr. Hackett said the cuts include some buyouts and layoffs that already have occurred, and the process will be completed by August, according to an email sent to employees on Monday. The cuts [7,000 salaried employees] will save about $600 million annually and are part of a broader, multiyear restructuring that will result in about $11 billion in charges.
The reductions will include 800 layoffs in North America, where Ford already has made about 1,500 voluntary buyouts, a company spokesman said. (…)
Just curious: what did Trump achieved with these tariffs? What did the U.S. gain here after warring during 11 months with its closest allies? The truth is that America has not won a single war since WWII and does not seem about to win its trade wars as well.
FYI, Apple derives between 10% and 13% of its quarterly revenues from China.
