China PMI dips to five-month low in November
Chinese manufacturing sector operating conditions continued to improve in November, albeit at a marginal pace. Output and new orders both rose only modestly, leading to a softer expansion in buying activity. At the same time, companies faced a further sharp increase in average input costs, that led to a notable rise in selling prices. Efforts to cut costs contributed to another fall in staffing levels, with the rate of decline quickening to a three-month record.
Subdued growth in new work and a sustained fall in employment coincided with a reduction in business confidence towards the one-year outlook. Notably, firms expressed the joint-weakest degree of optimism on record.
The seasonally adjusted Purchasing Managers’ Index™ (PMI™) registered 50.8 in November, down from 51.0 in October. While remaining above the crucial 50.0 value, the index dipped to its lowest level for five months to signal only a marginal upturn in operating conditions.
Chinese goods producers continued to increase their production levels in November. Although the pace of expansion picked up slightly from October, the rate of growth was modest overall.
Total new orders rose at a similarly modest pace in November. Companies that registered higher new work commented on greater client bases and the launch of new products. Nonetheless, data indicated that client demand was relatively subdued across both the domestic and external markets, as new export sales also rose modestly.
As has been the case in each month since November 2013, staff numbers at Chinese manufacturers declined during November. Though modest, the rate of job shedding was the fastest seen in three months. As a result, companies registered a further increase in the amount of unfinished business at their units. The rate of backlog accumulation remained marked, despite softening since October.
Reflective of only modest growth in production, firms raised their buying activity marginally in November. At the same time, inventory levels of both purchased and finished items were little-changed from the previous month, as efforts to raise stock holdings at some firms were largely offset by more cautious inventory policies elsewhere.
Issues with logistics and stricter environmental policies added further pressure to supply chains in November. That said, the degree to which vendor performance deteriorated was the least marked for four months.
Difficulties in obtaining inputs alongside higher raw material prices in international markets underpinned a further sharp rise in input costs faced by Chinese manufacturers. As a result, companies raised their prices charged at a solid pace.
OPEC Agrees to Limit Oil Output Through 2018
(…) In all, 24 countries that control about 60% of global crude production pledged to withhold about 1.8 million barrels a day of output—almost 2% of the world’s output. (…)
The producers also sounded a note of caution, highlighting that they could review whether output limits are still needed at their next meeting in June—a point insisted on by Russia. That raises the prospect of ending the production limits early if they assess that rising prices are helping American shale companies at the expense of countries that are cutting. (…)
Electricity Prices Plummet as Gas and Wind Gain Traction The rapid rise of wind and natural gas as sources of electricity is roiling U.S. power markets, forcing more companies to close older generating plants.
Wholesale electricity prices are falling near historic lows in parts of the country with competitive power markets, as demand for electricity remains stagnant while newer, less-expensive generating facilities continue to come online. (…)
Exelon Corp. EXC 0.05% , the country’s largest owner of nuclear power plants, placed its Texas subsidiary under bankruptcy protection earlier this month, saying that “historically low power prices within Texas have created challenging market conditions for all power generators.” (…)
The average wholesale power price was less than $25 per megawatt hour last year on the grid that coordinates electricity distribution across most of Texas, according to the operator, the Electric Reliability Council of Texas. A decade ago, it was $55.
Prices have fallen a similar amount on the PJM Interconnection LLC, the power grid that serves some or all of 13 states, including Pennsylvania and Ohio. A megawatt hour there traded for $29.23 last year, the lowest level since 1999, as far back as the grid’s independent market monitor tracks prices.
The falling prices have been felt primarily by wholesale generation companies, who sell their power to utilities, and generally haven’t trickled down to businesses and homeowners. But the lower prices have allowed many utilities to avoid raising customer rates while making substantial investments in modernizing aging electric transmission networks. (…)
An analysis by investment bank Lazard shows that on an unsubsidized basis and over the lifetime of a facility in North America, it costs about $60 to generate a megawatt hour of electricity using a combined-cycle natural-gas plant, compared with $102 burning coal and nearly $150 using nuclear. By that criteria, Lazard estimates electricity from utility-scale solar and wind facilities is now even cheaper than gas.
A megawatt hour of electricity from utility-scale crystalline solar comes in at $49.50 and wind at $45. That metric carries an important caveat, however: It doesn’t factor in that wind and solar are more intermittent producers of power than conventional generation sources, since the sun doesn’t always shine and the wind doesn’t always blow. (…)
I have warned about this in mid-2016 (HARD HAT ZONE) with this chart (updated) illustrating the wedge and wondering when energy regulators would ask power generators to pass their lower costs on to consumers.
- Demand is waning as this Yardeni chart illustrates:
Fed’s Dudley Sees No Need for Fiscal Stimulus New York Fed President William Dudley said that he sees a “reasonable case” to raise short-term interest rates next month and that any new fiscal stimulus approved by lawmakers in Washington could shape the central bank’s expectations for additional rate increases next year.
(…) “It would be a reasonable question to ask, is this the best time to apply fiscal stimulus, when the economy’s already close to full employment?” he said. “It’s probably not the best time.” (…)
“If I were to judge that the tax-cut package would push the economy along very rapidly without raising the productive capacity of the economy, then that would obviously factor into my own thinking on monetary policy,” Mr. Dudley said.
The current tax proposals appear to be a “mix” of the type of efficiency-boosting overhaul he supports and the more straightforward stimulus, he added. (…)
Senate Tax Plan Won’t Pay for Itself, Analysis Says
(…) The bill, which includes $1.4 trillion in net tax cuts over a decade, would make up for just $458 billion of that, or less than one-third of its cost, through economic growth, the analysis said. The bill also would increase federal interest costs by about $51 billion over a decade.
That means the net cost of the bill would be about $1 trillion over a decade, the report said. (…)
According to the report, the bill would increase gross domestic product by 0.8% over a decade compared with baseline estimates. (…)
It has never happened. So why would this time be different?
Tillerson, Cohn Could Leave White House in Wave of Senior Departures The White House is facing the prospect of another round of senior departures in the coming weeks as President Trump approaches his one-year anniversary in office.
Donald Trump is considering replacing Rex Tillerson with Mike Pompeo, director of the Central Intelligence Agency, according to US media reports, because of the increasingly sour relationship between the president and his secretary of state. (…)