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U.S. Initial Jobless Claims Fall Again
Initial claims for unemployment insurance decreased again in the week ended December 26, dipping to 787,000 seasonally adjusted from 806,000 the prior week; that earlier week was revised marginally from 803,000. The December 26 number was less than expected; the Action Economics Forecast Survey participants had estimated 830,000.
Initial claims for the federal Pandemic Unemployment Assistance (PUA) program, which covers individuals such as the self-employed who are not included in regular state unemployment insurance, also fell, reaching down to 308,262 in the December 26 week from 396,948 the prior week. Note that the brief history of this program, just back to April 4, 2020, means these data and other COVID-related series are not seasonally adjusted. Currently, this may simply mean that the decline in PUA initial claims is due to the Christmas holiday.
Continuing claims for regular state unemployment insurance declined by 103,000 in the December 19 week to 5.219 million from 5.322 million the week before. Continuing PUA claims, which are lagged an additional week and not seasonally adjusted, turned down by 811,465 to 8.460 million. The Pandemic Emergency Unemployment Compensation (PEUC) claims also decreased in the December 12 week, falling 20,377 to 4.773 million. This program covers people who were unemployed before COVID but exhausted their state benefits and are now eligible to receive benefits through March 11, 2021. Funding for both PUA and PEUC programs was renewed in the legislation signed by President Trump last Sunday.
MANUFACTURING PMIs
Eurozone: Manufacturing growth accelerates in final month of 2020
The seasonally adjusted IHS Markit Eurozone Manufacturing PMI® improved to its highest since May 2018 during the final month of 2020. Posting 55.2, up from 53.8 in November but a little softer than the earlier flash reading, the headline index was above the crucial 50.0 no-change mark that separates growth from contraction for a sixth successive month.
Although all three broad market groups recorded an improvement in operating conditions since November, rates of growth were noticeably different. Investment goods producers recorded the strongest improvement, followed by intermediate goods where marked growth was also registered. In contrast, only a marginal strengthening in operating conditions was seen amongst consumer goods producers.
Growth was again led by Germany, where the rate of expansion was the best for nearly three years, and the Netherlands which registered its best performance for over two years. Ireland also enjoyed a strong expansion (the sharpest in five months).
All other countries covered by the survey saw relative improvements in their PMI readings during the latest survey period. Austria and Italy saw solid growth, compared to much more modest gains in France and Spain. Greece remained the only nation in manufacturing contraction territory.
A sixth successive monthly increase in manufacturing production was signalled by the latest data, with the rate of expansion marked and up since November. The improvement was linked to a similar-sized increase in new orders, which also rose for the sixth month in a row.
New export orders increased markedly and to a greater extent than in November. The Netherlands and Germany reported by far the sharpest increases in export sales.
There remained evidence of some pressure on capacity as backlogs of work increased for a fifth successive survey period and at a rate that was close to October’s 32-month high.
However, firms on average made further cuts to their staffing levels, extending the current period of decline to 20 months. Job losses were most notable in Germany, although higher staffing in Italy and, to a lesser extent, France, meant that the overall drop in eurozone manufacturing employment was marginal.
Production was partly impacted by delays in the delivery of inputs during December. With purchasing activity increasing for a fourth successive month –and at the fastest pace since February 2018 – average lead times deteriorated to the greatest degree since April. Delays in transportation due to COVID-19 related restrictions and general goods shortages at suppliers were widely reported.
This helped to explain a rapid and accelerated increase in average input prices at the end of 2020. Latest data showed that operating expenses rose to the greatest degree since November 2018 with rates of inflation sharp across the bloc. Selling prices were subsequently increased for a third successive month and to the greatest degree since February 2019.
Faced with delays in the receipt of bought goods, manufacturers continued to run down their stocks of raw materials and semi-manufactured goods. Warehouse inventories were also reduced markedly, extending the current period of contraction to seven months.
Finally, confidence about the coming 12 months improved to the highest level in nearly three years as optimism rose on hopes that operating conditions would be closer to normal by the end of 2021. Italian and Dutch manufacturers were the most confident in December.
The strong manufacturing growth is thanks to a large extent on booming demand for German goods, which drove most of the increase in eurozone production during December, in turn buoyed by rising exports. While robust expansions were also seen in the Netherlands and Ireland, these in part reflected a temporary spike in UK demand prior to the end of the Brexit transition period.
China: PMI signals softer improvement in manufacturing conditions
The health of China’s manufacturing sector continued to improve in December, albeit at the softest rate for three months. Firms signalled slower, but still steep, expansions of output and total new work, while export sales rose modestly. At the same time, companies took a more cautious approach to employment levels amid an accelerated rise in overall input costs, as workforce numbers were broadly unchanged. Looking ahead, firms were still optimistic that output would increase over the next year, though overall confidence dipped to a three-month low.
The headline seasonally adjusted Purchasing Managers’ Index ™ (PMI ™ ) slipped from 54.9 in November to 53.0 at the end of 2020. The reading signalled a solid improvement in the health of the sector, as the economy continued to recover from the coronavirus disease 2019 (COVID-19) outbreak. That said, the rate of improvement was the softest for three months, having eased from November’s decade-high.
Weighing on the headline index was a slower increase in production during December. Nonetheless, the rate of expansion remained sharp overall. Firms also reported a slower, but still marked, increase in overall new orders. Underlying data suggested that this was partly due to weaker growth of new export sales, as demand from foreign clients expanded only modestly.
The sustained and strong rise in new orders led to further pressure on operating capacities, as highlighted by a further increase in outstanding workloads. However, firms were relatively cautious with regards to employment, with staff numbers broadly stagnant compared to the previous month. Some firms mentioned that cost cutting initiatives had weighed on recruitment.
Manufacturers in China registered a sharp and accelerated increase in average input costs in December amid reports of greater raw material costs, particularly for metals. Notably, the rate of inflation was the steepest recorded for three years and led to a quicker rise in prices charged by manufacturers.
Companies raised their buying activity again in December in response to greater inflows of new work. Though solid, the rate of increase was the softest since August, however. At the same time, stocks of purchased items rose only slightly, while inventories of finished goods were broadly stable.
The average time taken for inputs to be delivered to Chinese manufacturers lengthened further in December. Though mild, the rate at which vendor performance deteriorated was the quickest since April, with a number of firms linking delays to ongoing supply chain disruption as a result of the pandemic.
Chinese goods producers generally expect production to be higher than current levels in one year’s time amid forecasts of firmer global demand conditions and an end to the COVID-19 pandemic. Although easing for the second month in a row, the overall level of optimism remained above the long-run trend and was strong overall.
Japan: Manufacturing sector stabilises at end of 2020
The Japanese manufacturing sector ended 2020 with operating conditions stabilising in December, marking the end of a 19-month sequence of decline. Following significant disruption caused by the coronavirus disease 2019 (COVID-19) pandemic earlier in the year, businesses reported production volumes were unchanged on the month for the first time in two years, which brought a halt to 23 consecutive monthly declines in output. Moreover, stable conditions encouraged Japanese manufacturers to increase hiring for the first time in ten months in December.
The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI®) rose from 49.0 in November to reach the 50.0 no-change threshold in December. This marked the highest reading of the PMI since April 2019 as the sector continued to gradually recover from dampened operating conditions exacerbated by the COVID-19 pandemic.
The improvement in the health of the Japanese manufacturing sector was supported by a stabilisation in output levels in December. Unchanged from the previous survey period, this brought an end to a 23-month sequence of declines dating back to January 2019. Where production increased, panel members attributed this to increased orders for manufactured goods. That said, firms also noted that a third wave of infections had weighed on production.
New orders meanwhile, were reduced to the least marked extent of the past two years. According to anecdotal evidence, confidence remained downbeat due to the lingering impacts of the pandemic, although there was evidence that conditions were improving, notably in the automotive sector.
Nonetheless, Japanese manufacturers were encouraged to take on additional staff as operating conditions stabilised. Employment levels increased for the first time since February, albeit at a fractional pace, as firms prepared production lines for increased output. That said, manufacturers continued to report retirements were commonplace in the workforce. Furthermore, evidence of ongoing spare capacity remained among Japanese manufacturers, as the decline in backlogs of work was extended to two years.
There were further reports that rising raw material prices placed sustained pressure on average cost burdens across Japanese manufacturing firms in December. Input prices have now risen for seven months in a row, with the rate of inflation quickening to the fastest since January. Output prices meanwhile, increased for the second time in three months, albeit fractionally, as firms partially passed on higher input costs to clients.
Despite stabilising output and orders, buying activity fell again in December, extending the current sequence of decline to 24 months. Firms also cited ongoing supply chain disruption with a further lengthening in input delivery times. Furthermore, holdings of both pre- and post-production inventories were reduced further in the latest survey period.
Finally, business confidence regarding activity over the coming 12 months picked up in December. Robust positive sentiment was underpinned by hopes that the end to the pandemic and new product launches would stimulate demand throughout the coming year.
GLOBAL GROWTH INDEX FOR DECEMBER SHOWS RISE IN SALES BUT ALSO SIGNIFICANT RISE IN INFLATION AND CONTINUING JOB LOSSES
The Sales Growth Index rose from 51.1 to 52.9 in December. This is a 14 month high and represents a partial but clear indication of recovery from the depths of the Covid induced recession in global economic activity.
Business Confidence also rose marginally in December to a 9 month high, indicating more panelists believe the next few months see better times ahead, than those still viewing the future with trepidation. Rising “animal spirits” is in itself usually an indication that the business climate will improve, as rising confidence leads to rising investment in business systems and people.
Two big negatives remain evident from the survey results. First, the Prices Charged Index is now at a 10 month high, and indicating significant price rises are moving through the global sales systems. The second big negative is indicated by the Job Index, still well below the 50 “no growth” level, and reflecting the severe job losses that continue to derive from companies damaged by Covid.
OECD warns governments to rethink constraints on public spending Fresh austerity risks a public backlash, says chief economist Laurence Boone
EARNINGS WATCH
Another quarter, another year. Q4 EPS are seen declining 10.3% but many will not believe after the huge Q3 surprises (+19.6% on average). Q1’21 estimates are +16.0%, up from +11.8% on Oct. 1.
Corporate pre-announcements worsened Q4 vs Q3: positives rose 9 but negatives jumped by 15.
