SERVICES PMIs
USA: Business activity contraction gains pace as demand conditions weaken in November
November data signalled a faster contraction in business activity across the US service sector, according to the latest PMI™ data. The fall in output was solid overall and the second-sharpest since May 2020. Contributing to the decline was a steeper decrease in new orders, as domestic and foreign client demand remained weak. Efforts to entice customer spending were reflected in the slowest rise in output charges since October 2020. Softer upticks in selling prices followed easing cost pressures, as input prices increased at the slowest rate in almost two years.
Subdued client demand led to a strong decline in backlogs of work, with concerns for future new order inflows driving below-average levels of business confidence. Nonetheless, efforts to fill long-held vacancies saw employment rise marginally.
The seasonally adjusted final S&P Global US Services PMI Business Activity Index registered 46.2 in November, down from 47.8 in October but broadly in line with the earlier released ‘flash’ estimate of 46.1. The latest headline figure indicated a solid decrease in output at service providers. The fall in business activity was largely linked to lower new orders and subdued client demand. The rate of contraction was the fastest since August and among the sharpest on record (since October 2009).
Driving the decrease in service sector output were declines in domestic and foreign client demand in November. Total new business fell at a solid pace that was the fastest since May 2020, as inflation and higher interest rates put pressure on customer spending and drove client hesitancy.
At the same time, new export orders contracted for the sixth month running and at a steeper pace. The downturn in foreign client demand was the quickest in two-and-a half years, as economic conditions in key export markets remained challenging.
On the price front, cost pressures softened again midway through the fourth quarter. The rate of input price inflation eased to the slowest since the end of 2020 as firms noted a reduction in some input costs. Nonetheless, cost burdens continued to be driven up by higher supplier and wage bills.
Although firms remained keen to pass on higher costs to clients through a further hike in selling prices during November, the pace of increase moderated. Output charges increased at the softest rate for just over two years as some companies offered discounts to customers in an effort to spur on new sales.
Service providers recorded a second successive monthly decline in backlogs of work in November. The rate of contraction quickened to the joint-fastest since May 2020. Lower levels of unfinished business reportedly stemmed from a further reduction in new orders, which allowed firms to deal with backlogs.
Despite a reduction in pressure on capacity, firms continued to hire midway through the fourth quarter. Nonetheless, where job creation was noted, firms largely attributed this to the filling of long-held vacancies. The uptick in staffing numbers was only marginal and the second-slowest since September 2020.
Hopes of greater client demand and lower rates of inflation over the coming year supported an improvement in business expectations in November. The degree of confidence was below the series trend, however, as firms remained concerned regarding cost pressures, the economic outlook, rising interest rates and customer hesitancy.
Once again, the ISM services index diverges from the S&P Global PMI, increasing by 2.1 to 56.5 in November, against expectations for a decline. The ISM new orders index edged down 0.5 to 56.0 while the S&P Global’s “fell at a solid pace that was the fastest since May 2020”. Recall that the ISM survey covers fewer companies, mainly large ones and is not as diversified industry-wise.
(Reuters)
Also from Reuters:
But the weakness in manufacturing, which accounts for 11.3% of the U.S. economy, is not yet evident in the so-called hard data.
A report from the Commerce Department on Monday showed factory orders jumped 1.0% in October after rising 0.3% in September. Economists had forecast orders advancing 0.7%. Orders shot up 12.8% on a year-on-year basis in October.
October’s jump in factory orders was driven by a 2.2% rise in bookings for transportation equipment, which followed a 2.3% increase in September. Transportation equipment orders were boosted by increases in orders for both defense and civilian aircraft. Motor vehicle orders rebounded 1.7%.
Orders for machinery rose 1.5%. There were also solid gains in orders for computers and electronic products as well as electrical equipment, appliances and components.
Eurozone economy contracts for a fifth successive month in November
Output levels across the euro area shrank once again in November, extending the downturn into a fifth month. Although the rate of contraction eased for the first time over this sequence due to a slower fall in manufacturing production, this masked an accelerated decline in the eurozone’s dominant services sector. Excluding months hit by COVID-19 restrictions, November’s contraction was the second-sharpest since May 2013.
The latest survey data also pointed to a softer deterioration in demand for goods and services, although backlogs of work fell at a stronger pace in a sign of alleviating capacity constraints. Employment continued to rise, although the rate of job creation was the weakest in almost two years.
Notably, a pronounced softening of cost pressures in the manufacturing sector helped bring the overall rate of input price inflation down to its lowest since September 2021. Output charges were subsequently lifted to a weaker extent.
Business confidence improved slightly, marking a further step-up from September’s 28-month low. Nevertheless, optimism remained weak.
The seasonally adjusted S&P Global Eurozone Composite PMI Output Index posted in sub-50.0 contraction territory for the fifth month in a row during the latest survey period. Although November’s reading of 47.8 was up from 47.3 in October, and therefore indicated a softer rate of decrease, it marked the longest downturn in the euro area economy since the recession between 2011 and 2013 that was triggered by the eurozone debt crisis.
Output levels across both the manufacturing and services sectors contracted in November. While the downturn in the goods-producing sector eased since October, services activity fell at its sharpest pace since February 2021. Subdued demand conditions were a considerable drag on economic activity across the euro area once again, while the energy crisis also dampened output at some companies.
For the first time since May 2020, combined manufacturing and services output fell in each of the euro area nations where Composite PMI data are available. Germany remained the worst performer in November, although the downturn here eased as activity fell at the weakest pace since August. Softer contractions were also seen in Italy and Spain, although France and Ireland recorded their first declines in output since February 2021.
November survey data signalled a fifth successive fall in new business intakes at euro area companies. While the pace of reduction softened from October’s 23-month record, it was still strong overall. Factory order book volumes sank sharply and compared with a more modest reduction in the demand for services. Nevertheless, the level of new business placed with service sector companies fell at a rate that was unchanged from October’s 20-month record. A rapid fall was also seen in foreign client demand.
Capacity pressures subsided further in November, as evidenced by a fifth monthly fall in the volume of work outstanding. Moreover, the rate of backlog depletion was the fastest in two years.
The ability to clear pending orders at a sharper pace was aided by continued hiring. Staffing levels rose further in November, extending the current sequence of job creation which began in February 2021. However, the rate of employment growth slowed to a 21-month low.
There was a slight pick-up in business confidence during November, marking a further improvement following September’s 28-month low. That said, the level of optimism remained well below its long-run average. Recession fears, persistent inflation and the energy crisis all weighed on business sentiment, according to survey respondents.
The survey’s price gauges indicated receding inflationary pressures across the euro area. Input costs rose sharply, but to the softest extent since September 2021. The rate of input price inflation across the manufacturing sector eased notably in November. Output charges meanwhile rose at the weakest pace in three months.
The S&P Global Eurozone Services PMI Business Activity Index signalled a fourth straight month of falling output levels across the service sector in November. At 48.5, this was down fractionally from 48.6 in October and signalled the fastest decline in business activity since February 2021.
Weak demand conditions were a major factor behind the drop in output in November. Incoming new business receipts fell for a fifth month running, with the pace of decline unchanged from October’s 20-month record.
For the second time in the past three months, the level of work pending completion fell across the eurozone service sector, highlighting reduced pressure on capacity. Employment continued to rise, although the rate of job creation was the weakest in just over a year-and-a-half.
Meanwhile, input costs and output charges both increased sharply, although rates of inflation were at their weakest in three months in both instances.
There was another marginal uptick in the level of optimism at service sector companies, although the business outlook remained subdued.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“A fifth consecutive monthly falling output signalled by the PMI adds to the likelihood that the eurozone is sliding into recession. However, at present the downturn remains only modest, with an easing in the overall rate of contraction in November means so far the region looks set to see GDP contract by a mere 0.2%.”
China: Services activity falls at quicker rate in November
The ongoing implementation of COVID-19 containment measures continued to dampen the performance of China’s service sector in November. Companies registered the strongest falls in output and new work for six months, as efforts to contain the spread of the virus impacted operations and dampened customer demand. At the same time, companies recorded a renewed drop in workforce numbers, and confidence regarding the 12-month outlook for output slipped to an eight-month low.
Cost pressures were relatively muted, with input costs rising at the softest pace since June and only modestly. Concurrently, prices charged by services companies rose only slightly.
The seasonally adjusted headline Business Activity Index dipped from 48.4 in October to 46.7 in November, to signal a third successive monthly reduction in service sector output. The rate of decline was solid overall, but remained weaker than the falls seen during the previous major wave of COVID-19 cases from March to May.
Efforts to curb the spread of COVID-19 amid a notable rise in case numbers in recent weeks, weighed on service sector business operations and customer demand across China during November. Total new business fell for the third month running, and at the strongest rate since May, with a number of firms citing reduced client numbers. In contrast, the amount of export business returned to growth in November, with some firms stating that the relaxation of international travel rules had supported higher export sales. That said, the rate of growth was only fractional as the global economic environment remained challenging.
Restrictions around mobility meant that some staff were unable to attend the workplace, which contributed to a renewed fall in employment at services companies. There were also reports of firms trimming workforce numbers due to reduced activity levels. Notably,the rate of job losses was the quickest seen since the survey began in November 2005.
Further disruption to business operations due to pandemic restrictions led to a further accumulation of unfinished work. Backlogs at service providers rose at the fastest rate for six months, albeit modestly overall.
Prices data signalled relatively muted cost pressures in November. The rate of input cost inflation softened for the third month in a row, and was among the weakest seen in over two years. Where higher expenses were reported, firms linked this to greater costs for raw materials, office supplies, transport and staff. Companies also registered a slower rise in prices charged, which increased only slightly overall. Some firms mentioned that efforts to boost sales amid the pandemic had limited their pricing power.
Although companies were generally optimistic that business activity will rise over the next year, the degree of positive sentiment slipped to an eight-month low in November. While many firms were hopeful of a strong post-pandemic recovery and firmer customer demand, others expressed concerns over how long it will take to contain the virus and the impact of restrictions on operations and market demand.
But that may no longer be reliable: China Reports Fewer Covid Cases as Blanket Testing Rules Eased
From the FT via @C_Barraud
U.S. Recession Risk Monitor
The excellent team at National Bank Financial produces this useful recession risk monitor:
The table below shows the current reading and recent momentum of several indicators compared to the ones observed three months before the eight previous recessions. Red indicates that the current reading is worse than any historical episodes while green is better. Both yellow and orange are in the historical range, the former indicating a better situation compared to the median while the latter shows the opposite.
It is interesting to see that financial market indicators are all in the red/reddish side, the surveys data are a little better but also worsening and the hard data remain on the somewhat more hopeful side.
TECHNICALS WATCH
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Watch: S&P 500 Large Cap Index – 13/34–Week EMA Trend
The large gap to the (still falling) 200dma has been closed:
- “The Perfect Bull Trap”: Mike Wilson Turns Bearish Again, Says The Rally Is Over “The bear market rally we called for 6 weeks ago is running out of steam”
- 10-Year Treasury Weekly MACD: Buy Signal
That scary energy gap (The Market Ear)
Starting to feel a little discomfort?
Refinitiv
Retail selling will continue (The Market Ear)
MS’ QDS model suggests that retail has been a consistent seller of equities in the last several months – which is expected to continue into YE / into 2023). From the QDS team:
“The only other time when retail has been a consecutive seller of single-names three months in a row was 4Q18, during which retail also sold ~$70B of single stocks. However, that does not mean that retail has yet ‘capitulated’ to the same degree that they did in 4Q18. Retail has been a much bigger buyer of single stocks in the last three years (demand is on the order of ~3x bigger than it was in 2016-2018).
Looking in relative terms, in 4Q18, retail sold 30-40% of the single names bought in the prior three years. Applying that to today’s numbers would imply that retail could sell a further $100-150B of single stocks (beyond the $70bn already sold since April).”
Morgan Stanley
TSMC Raises Arizona Chip Investment to $40 Billion as Biden Visits The Taiwan company plans second factory at the U.S. site to make advanced semiconductors.
(…) Under a previously disclosed $12 billion investment plan, TSMC is already building its first factory in Arizona.
In advance of Mr. Biden’s visit to the plant on Tuesday, the White House released details of a second factory planned for the site, saying construction would start in the coming year and production would begin in 2026.
The second factory, first reported by The Wall Street Journal, will make chips with 3-nanometer technology, equal to the tiniest and fastest chips available today, and TSMC’s total investment in Arizona will expand to $40 billion, the White House said. (…)
TSMC recently started making 3-nanometer chips in Taiwan. By 2026, those chips would likely be at least two generations behind the leading edge. (…)
The White House said the first TSMC factory in Arizona, which originally was supposed to produce 5-nanometer chips, would also produce 4-nanometer chips. That factory is expected to start mass production in 2024.
TSMC executives have said they plan to keep the most advanced manufacturing in Taiwan. (…)
Airfield near Ukraine border hit by drone strike, says Russia
New AI chatbot is scary good
We didn’t believe this until we tried it:
- ChatGPT, a new chatbot from the tech company OpenAI, shows just how far artificial intelligence has come.
- Give the software a prompt — and it spits out articles and poems that sound scarily human.
ChatGPT shows AI’s power and fun. But it could make life difficult as teachers and bosses try to figure out who really did the work — and all of society struggles even harder to discern truth from fiction, reports Axios chief tech correspondent Ina Fried.
- “[I]t’s possible that OpenAI invented history’s most convincing, knowledgeable and dangerous liar — a superhuman fiction machine that could be used to influence masses or alter history,” writes Ars Technica AI reporter Benj Edwards.
Matt Lira, a former White House and congressional adviser on innovation policy, helped us test the chatbot.
Lira gave the robot this prompt: “Write a poem about Axios.”
- That’s it. Here’s what came back:
Then he told it: “Write a poem about Axios in the style of William Shakespeare.” Voilà:
You can use the chatbot for free. Create an account on OpenAI using your email — and play around. Send us your discoveries.
I can think of so many ways how this can be used, like “Write a buy story on GameStop”… (BTW: GameStop begins a round of layoffs. (Axios))
Fortune’s Jacob Carpenter adds:
ChatGPT can write lines of code, pen a college-level essay, author responses in the voice of a pirate, and write a piano piece in Mozart’s style. For more examples of its astounding capabilities, simply search “ChatGPT” on Twitter and prepare to be awed. (…)
As some industry insiders and media members have pointed out, ChatGPT performs many of the functions of Google—and often does them better than the Alphabet unit. Whereas Google merely empowers you with the links and tools needed to research information, ChatGPT can answer elaborate questions, solve intricate problems, and converse in a human-like manner.
Just how much of a threat could technology like ChatGPT pose to Google? Considering Alphabet earned $149 billion in revenue last year from Google Search and other web-based Google properties, the implications are enormous.
“The potential for something like OpenAI’s ChatGPT to eventually supplant a search engine like Google isn’t a new idea, but this delivery of OpenAI’s underlying technology is the closest approximation yet to how that would actually work in a fully fleshed out system, and it should have Google scared,” TechCrunch U.S. managing editor Darrell Etherington wrote Friday. (…)
ChatGPT and lesser chatbots still churn out incorrect, incoherent, biased, or dangerously misguided answers on occasion, undercutting confidence in the product. (OpenAI willingly acknowledges these issues, calling them a necessary but unfortunate cost of development.) Google, by contrast, largely avoids such pitfalls by putting the onus on users to sift through information and draw their own conclusion.
“Search satisfaction is a reputation business,” Delip Rao, an A.I. researcher at the University of Pennsylvania, tweeted Saturday. “Once folks are let down by a search result on something critical, they will use less and less of that search interface. (…)