A U.S. PMI Clunker

December 1, 2015

The Institute of Supply Management’s U.S. manufacturing purchasing managers index unexpectedly worsened in November and substantially at that.  The PMI declined 1.5 points, moving below the 50 no change threshold for the first time in three years and printing at 48.6, the lowest reading since the last U.S. recession ended in June 2009. Manufacturing PMI scores of 48.6% are consistent with overall real GDP growth of about 1.75%.  A separate manufacturing PMI compiled by Markit Economics declined 1.3 points to 52.8.

The dollar fell overnight by 2.2% against the kiwi, 1.2% relative to the Australian dollar, 0.4% vis-a-vis the yen and loonie, 0.3% versus the euro and Swissie, and 0.1% against sterling.  The yuan is steady.

U.S. stocks rose 0.8% in the first hour of trading.  Earlier the Japanese Nikkei closed up 1.3% and above the 20K level.  Elsewhere in the Pacific Rim, share prices advanced 1.9% in Australia, 2.5% in Indonesia, 1.7% in Hong Kong and Taiwan, 1.6% in South Korea, and 0.7% in China.  In Europe so far, the British Ftse is up 0.7%, but the German Dax and Paris Cac have lost 0.5% and 0.4%.

West Texas Intermediate oil rose 0.6% to $41.89 per barrel, and Comex gold is 0.3% firmer at $1,068.05 per ounce.

Ten-year sovereign debt yields are down a basis point in the U.S., Britain, and Japan.  German bunds slipped 2 bps.

Two central banks announced unchanged interest rate decisions.

  • The Reserve Bank of Australia’s cash rate stays at 2.0%.  There were earlier cuts this year of 25 basis points in February and May.  Officials didn’t rule out the possibility of a further reduction.
  • India’s repo and reverse repo rates were kept steady at 6.75% and 5.75%.  They were cut four times earlier this year (January, March, June and September) by a total of 125 basis points.

Also on the central bank watch, Bank of Japan Governor Kuroda promised to do whatever it takes to achieve the 2.0% core CPI inflation target, and Bank of England Governor Carney said the eventual normalization of interest rates there will be “limited and gradual.”

Canadian real GDP rebounded from back-to-back contractions in the first half of 2015 to post a rise in 3Q of 2.3% at an annualized rate.  Personal consumption, residential investment, and net exports made positive contributions to the growth rate, while non-residential investment, inventories, and government spending exerted drags.

The good news of the positive quarterly Canadian growth rate was tainted by an unexpected 0.5% monthly GDP contraction in September, with industrial production sinking 2.1% on month and 3.6% on year.

Brazil’s recession deteriorated last quarter, and real GDP plunged 1.7% to 4.5% below its year-earlier level.

Swiss real GDP was unexpectedly flat in the third quarter and just 0.8% above its year-earlier level.

Revised Italian 3Q GDP data kept the preliminary 0.2% on-quarter result but revised the flash on-year estimate down 0.1 percentage point to 0.8%.

Eurozone unemployment slipped 0.1 percentage point to 10.7% in October.  It was at 11.5% in October 2014.

German unemployment dropped 13K in October, which was more than forecast and enough to cut the jobless rate in the euro area’s largest economy to 6.3%.  Italian unemployment slid to 11.5% in October from 11.6% the  month before, but Austria’s jobless rate rose in November.  Irish unemployment held steady at 8.9% in November.

Euroland’s manufacturing purchasing managers index rose 0.5 points to a 19-month high of 52.8 in November.  Individual results ranged from Italy’s 4-month high of 54.9 to Greece’s 8-month high of 48.1.  Other readings were 53.5 for The Netherlands (2-month low), 53.3 in Ireland (21-month low), 53.1 in Spain (3-month high), 52.9 in Germany (3-month high), 51.4 in Austria (3-month low), and 50.6 in France for a third straight month.

In other PMI manufacturing survey results for November,

  • Britain’s PMI fell back 2.5 points to a 2-month low of 52.7, casting doubt that the government’s 4Q GDP growth assumption of 0.6% will be achieved.
  • Japan scored a 52.6, down 0.2 points and at a 2-month low.
  • Australia’s index rebounded 2.3 points to 52.5.
  • China’s government-compiled manufacturing index fell 0.2 to 49.6, marking a 4th straight sub-50 result.  The government’s non-manufacturing PMI rose 0.5 points to 53.6.  Caxin’s private PMI for China stayed below 50, printing just 0.3 points higher at 48.6.
  • India’s PMI dropped 0.4 points to a 25-month low.
  • Russia’s index printed a tad lower at 50.1.
  • Turkey’s index rose 1.4 points to a 11-month high of 50.9.
  • Switzerland’s PMI dropped 1.0 points and, at 49.7, was below 50 for the second time in the past three months.
  • Sweden’s PMI rose to a 4-month high of 54.9 from 53.4 the month before.
  • Hungary scored a 56.2 in November, up from 55.4 in October.
  • The Czech PMI improved 0.2 points to a 2-month high of 54.2.
  • Poland’s PMI was at a 2-month low of 52.1.
  • Brazil’s manufacturing index dropped another 0.3 points to an 80-month low of 43.8.
  • Canada’s PMI rose 0.6 points to 48.6.
  • South Korea’s PMI remained at October’s 2-month low of 49.1.
  • Taiwan’s reading again stayed below 50 despite a 1.7-point advance to 49.5.
  • Malaysia’s PMI fell 1.1 points to 47.0.
  • Indonesia’s PMI fell 0.9 points to 46.9.
  • Vietnam’s PMI decreased to 49.4 from 50.1.

In the year to November, consumer prices rose 1.0% in South Korea and 4.9% in Indonesia.

Australia recorded an A$ 18.1 billion current account deficit last quarter, down from a shortfall of A$ 20.5 billion in the second quarter of 2015.  Australian building permits increased 3.9% in October, but their 12-month rate of increase narrowed to 12.3%.

Johnson-Redbook’s weekly estimate of chain store sales in the United States last week went up 1.6% on week and 3.9% on year.

U.S. construction spending rose 1.0% in October on top of a 0.6% increase in September.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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