Note: I am travelling (ancient word: “go from one place to another, typically over a distance of some length”) in Europe until August 23rd. Postings will thus be sporadic, limited and time-zones impacted.
U.S. Empire State Manufacturing Index Plummets in August; Lowest Since May ’20
The Empire State Manufacturing Index of General Business Conditions plunged to -31.3 in August, down from 11.1 in July and -1.2 in June, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. The Action Economics Forecast Survey had expected a positive reading of 5.0.
The August negative result, down from 18.3 in August 2021, was the lowest level since May 2020’s -48.5. (…)
Haver Analytics constructs an ISM-adjusted Empire State diffusion index using methodology similar to the ISM series and information from five component indexes in the survey. The index fell to 45.9 in August from 57.3 in July and 56.7 last August, indicating activity contracted for the first time since August 2020 to the lowest level since May 2020’s 40.5.
The new orders index dropped to -29.6 in August, the lowest reading since May 2020, from 6.2 in July and 14.8 in last August. (…)
The unfilled orders index dropped to -12.7 in August, the lowest level since August 2020, from -5.2 in July and 15.0 last August. The delivery times index fell to -0.9 in August from 8.7 in July, with a lessened 18.2% of respondents reporting higher delivery times and an increased 19.1% of respondents reporting lower delivery times. The inventories index dropped to 6.4 in August from 14.8 in July, registering the lowest reading since 6.2 last August.
The number of employees index decreased to 7.4 in August, the lowest level since April, from 18.0 in July and 12.8 last August. (…) The average workweek slid to -13.1 in August, the lowest reading since May 2020, from 4.3 in July and 8.9 last August.
Inflation pressures eased a bit this month. The prices paid index declined to 55.5 in August, the lowest reading since January 2021, from 64.3 in July and 76.1 last August; thus, suggesting a deceleration in input price increases. Nearly sixty-one percent of respondents reported higher prices paid in August, while 5.5% reported lower prices paid.
The prices received index was at 32.7 in August, slightly up from 31.3 in July but down from 46.0 last August. About thirty-six percent of respondents reported higher prices received in August, while only 3.6% reported lower prices received.
The indexes of expected conditions in six months were mixed. The index for future business conditions rebounded to a still-low 2.1 in August after falling 20.2 points to -6.2 in July, indicating firms were not optimistic about their six-month outlook. Expectations for new orders (14.0) and shipments (18.7) improved but remained at low levels. Expectations for employment picked up to 30.0 in August from 22.5 in July. Expected delivery times declined to -12.7 from -9.6. Expectations for capital spending and technology spending eased slightly, to 12.7 and 10.0, respectively.
U.S. Home Builder Index Extends Downward Trend
The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo declined 10.9% during August (-34.7% y/y) to 49, the lowest level since May 2020. The index is down 45.6% from its November 1990 high of 90. A reading of 55 had been expected in the INFORMA Global Markets survey.
All three HMI components continued to decline this month. The index of present sales conditions fell 10.9% (-29.6% y/y) to 57, the seventh decline in eight months. It followed a 15.8% July decline. The level was 40.6% below the record-high 96 in November 2020. The index of expected sales over the next six months weakened 4.1% (-42.0% y/y) to 47, the seventh monthly decline this year. It stood at the lowest level since May 2020, off 47.2% from the November 2020 peak.
The index measuring traffic of prospective buyers eased 13.5% (-45.8% y/y) to 32, the seventh m/m decline this year.
Each of the regional index readings weakened this month. The index for the Midwest fell 14.3% (-34.4% y/y) to 42 in August, down every month but two this year. The index for the Northeast declined 14.0% (-35.5% y/y) to 49, off 43.7% from the February 2021 peak. The index for the West was off 10.6% (-50.6% y/y), down 57.1% from the November 2020 peak. In the South, the index weakened 10.0% (-29.9% y/y) to 54, the seventh monthly slide this year. The regional series begin in December 2004.
- Canadian Housing Correction Accelerates, Prices Seen Falling 25% Royal Bank of Canada has predicted this will be the biggest real-estate correction Canada has seen in at least 40 years. National sales and price data for July are due next week, with Toronto already reporting a 3.9% decline in its home-price index on the month — capping its worst four-month drop since 2005.
China’s Growth Slowed, Prompting Surprise Rate Cut Economic activity worsened across the board in July, highlighting the breadth of the challenge facing policy makers in a politically sensitive year for leader Xi Jinping.
- John Authers: China Surprise Data Could Spell R-e-c-e-s-s-i-o-n
(…) People were entitled to be surprised about this. Only last week, the People’s Daily, mouthpiece of the Communist Party, ran this piece that opened as follows:
“China’s central bank is expected to pay more attention to keeping inflation in check during the rest of the year while sustaining support for economic growth, experts said on Thursday. Given the necessity of maintaining price and financial stability, the possibility of cutting policy interest rates in the coming months has declined.”
(…) It’s not long since problems for the Chinese economy were regarded as a positive for the rest of the world, because these would prompt another big credit-fueled stimulus. But without sufficient demand for credit, any monetary stimulus could be like pushing on a string. As Marko Papic of Clocktower Group shows, the interest rate on one-month bank notes has dropped to zero, implying minimal demand for credit. (…)
Chinese authorities also have to contend with the ongoing fallout from the fall in property prices, which has continued unabated for almost a year, and the difficulties for property developers. The problems for China Evergrande Group briefly prompted a spasm across world markets late last year, but have now largely left the headlines. Evergrande’s issues are still intense, however. Indeed, the yield on its bonds maturing in 2025 is now over 150%. (…)
If none of this sounds healthy, that’s because it isn’t. And yet stock markets in Europe and the US managed to register gains for the day. That sounds worryingly insouciant.
The Chinese military tests around Taiwan appear to have been quickly forgotten, at least on markets — and there are good reasons to believe that China simply can’t afford to try to take over the island now, as George Magnus explains in this piece. But the lack of any great market reaction to the Shanghai Surprise is concerning. At one level, a slowing China helps to bring down commodity prices (down almost across the board on Monday), which helps defeat inflation. But there was a hope that inflation could be beaten without too much pain for economic growth. A serious Chinese slowdown would make a global recession much harder to avoid, and should be bad news for stock markets.
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“We’ve never seen a property market slowdown of this size and severity.”— Logan Wright, director of China markets research at Rhodium Group to the WSJ, on China’s increasingly deteriorating property bubble, which is compounding its economic woes.
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China’s economic weakness goes beyond real estate Real estate property construction, home sales and mortgages are just part of the weaknesses we have seen in the Chinese economy. Export demand could also weaken in the coming months. This will derail job growth in China, creating a vicious cycle on consumption and economic growth despite Covid measures becoming more flexible