Economic Roundup 1-14-14General News:
It’s monthly PMI time again, so we’ll be checking around to see how everyone is doing. Remember, with PMI data, 50 is the break-even point between contraction (less than 50) and expansion (greater than 50) in that area.
+ The ISM Manufacturing report for the US is in and the December PMI is 57.0
This registers an decrease of 0.3 points from last month’s 57.3, and indicates an expansion in manufacturing activity, with a decreasing trend for growth, and the second highest of the year.
New Orders increased to 64.2, indicating increasing orders at a growing rate.
Production fell to 62.2, increasing production at a slowing rate.
Employment rose to 56.9, growing and at a faster rate.
Supplier Deliveries rose to 54.7, indicating slower delivery that is getting worse (backlogs).
Inventories fell to 47.0, indicating shrinking from growing.
Prices rose to 52.5, indicating faster increasing input prices.
Backlog of Orders fell to 51.5, showing rising backlogs, but rising at a slower rate.
Exports fell to 55.0, and are growing, but at a slower rate.
Imports remained even at 55.0, and are growing, and at the same rate as last month.
Of the 18 manufacturing industries, 13 reported growth. Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Apparel, Leather & Allied Products; Computer & Electronic Products; Paper Products; Transportation Equipment; Primary Metals; Fabricated Metal Products; Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing.
The 4 losers this month were Nonmetallic Mineral Products; Machinery; Chemical Products; and Electrical Equipment, Appliances & Components.
Dec 2013 57.0
Nov 2013 57.3
Oct 2013 56.4
Sep 2013 56.2
Aug 2013 55.7
July 2013 55.4
June 2013 50.9
May 2013 49.0
Apr 2013 50.7
Mar 2013 51.3
Feb 2013 54.2
Jan 2013 53.1
Dec 2012 50.2
[PMI survey numbers continue to show healthy expansion of manufacturing activity. New Orders continue to grow, production is expanding to accommodate, and more people are getting hired to work the production lines. Deliveries are slowing as production isn’t keeping up, and inventories are being drawn down because of it.]
>< The ISM Non-Manufacturing report for the US is in and the December NMI is 53.0
This registers a fall of 0.9 points from last month’s 53.9, and indicates an increase in non-manufacturing activity, but at a slower rate.
The Business Activity Index component fell back again slightly, to 55.2, down 0.3 points from last month, but is growing at a nice rate, and still away from the contraction/expansion mark of 50.0.
The New Orders Index decreased significantly, by 7.0 points to 49.4, and has gone from healthy expansion straight over to contraction.
Employment Activity rose for the second month, by 3.3 points to 55.8, indicating growing employment activity at a faster rate. Employment has now been growing for 17 straight months, with 8 industries reporting growth in employment while the other 10 reporting decreased employment or no change.
Supplier Deliveries rose to 51.5, indicating slower deliveries.
Inventories fell to 48.0, indicating declining from growing.
Prices rose to 55.1, indicating faster growing input prices.
Backlog of Orders fell to 46.0, faster shrinking backlog levels.
Exports fell to 51.5, and are at a growing, but slower, rate.
Imports fell to 50.5, and are nearly flat from last month.
Of the 18 non-manufacturing industries, 8 reported growth. Industry leaders are (in order) Management of Companies & Support Services; Retail Trade; Other Services; Finance & Insurance; Public Administration; Construction; Information; and Health Care & Social Assistance.
Losers include Mining; Arts, Entertainment & Recreation; Educational Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Utilities; Wholesale Trade; and Accommodation & Food Services.
Dec 2013 53.0
Nov 2013 53.9
Oct 2013 55.4
Sep 2013 54.4
Aug 2013 58.6
July 2013 56.0
June 2013 52.2
May 2013 53.7
Apr 2013 53.1
Mar 2013 54.4
Feb 2013 56.0
Jan 2013 55.2
Dec 2012 55.7
[Activity in the non-manufacturing sector of the economy seems to have slowed slightly in December, although it is still expanding in activity. Troubling, however, is the sharp drop off in New Orders that occurred. While this could be a drop off because of the holidays, the PMI is a seasonally-adjusted number and should have accounted for such a drop. Very likely, the unseasonably cold weather influenced productive efforts and resulted in a pullback. Also likely is “regime uncertainty” related to new rules and regulations for the coming year. One survey respondent is quoted as such:
“Hiring activity seems to remain steady at mid- to senior-level management positions. However, it is uncertain what impact the Affordable Healthcare Act will have on hiring and full-time status in 2014 as more companies are re-evaluating their healthcare benefits strategies for all positions.”
Going by the numbers, it is interesting that there was a significant drop off in new orders and inventories were allowed to decline, and yet backlogs increased and deliveries slowed. It should be interesting to see what the trend will be for January.]
Energy News:
[Production capacity used continues to be high this week, and crude supplies continue to be near all-time highs, although they are in heavy decline because of the impressive cold that has been ravaging the country. Crude is still trading higher than a year ago, but only slightly as prices have recently pulled back a little.
Gasoline stocks have experienced some decent drawdowns, but with production increasing. Diesel production was down slightly, and stocks increased this week, but are still at historic lows.
Gasoline prices fell this week, and are only fractionally up year-on-year (last year had significant declines all year, so slight increases this year mean that prices are fluctuating around last year’s lows). Diesel prices, however, are still down year-on-year and decreasing.
Natural Gas prices are trending up, and are up year-on-year, but remain at historically low rates with increasing drawdowns for heating and electricity taking place. Record cold has also influenced supply which has led to some price increases.]
+ Production:
Crude oil inventories decreased 2.7 million barrels from last week, and are near the upper limit for this time of year at 357.9 million barrels.
Gasoline inventories increased 6.2 million barrels but fell into the lower half of the average range, with gasoline production very slightly rising (9.1 million bpd from 9.1 million bpd) compared to the previous week.
Distillate (diesel and home heating oil) inventories increased by 5.8 million barrels, but are below the lower limit of the average range. Distillate production was down slightly last week (5.1 million bpd from 5.2 million bpd).
Refineries operated at 92.3% capacity.
Oil (WTI) was down $6.28 from last week and is at $93.66 per bbl, and $0.54 above a year ago.
+ Gasoline & Diesel
The AAA national average retail regular gasoline fell slightly this week, dropping to $3.308 per gallon ($3.317 per gallon last week; $3.304 a year ago).
Diesel prices fell slightly this week to $3.865 per gallon ($3.872 per gallon last week; $3.901 a year ago).
>< Propane
Propane inventories fell 3.5 million barrels from last week, and are below the lower limit of the average range.
Mount Belvieu, TX propane spot pricing as of 1-3-14 was down again at $1.225 per gallon from last week’s $1.260 per gallon. It was $0.840 per gallon a year ago. (EIA Wholesale Propane average prices are generally $0.10 to $0.15 higher than the Mount Belvieu, TX spot price)
>< Natural Gas
Working natural gas in storage saw a large net withdrawal, with a drawdown of 157 Bcf, to 2,817 billion cubic feet, with storage volumes 528 Bcf (15.8%) below year ago levels, and 315 Bcf (10.1%) below the 5-year average.
Total natural gas consumption for the week declined 29.8% relative to last week. Extreme low temperatures brought about significantly increased year-on-year consumption. Total consumption hit a record 137.0 Bcf last Tuesday as the polar cortex dramatically reduced temperatures, increasing the demand for both direct heating and power consumption.
Total supply decreased 0.6% over the week. U.S. dry gas production increased 2.7% this week following widespread well freeze-offs in PA and AR. Increased imports from Canada helped to offset the losses.
Natural Gas Henry Hub spot price (1-3-14) rose slightly this week to $4.39 per million BTUs ($4.34 per MMBtu last week, $3.19 per MMBtu a year ago).
>< Heating Oil
No. 2 Heating Oil, New York Harbor (1-3-14) was down slightly from last week, at $2.967 per gallon ($3.124 a week ago, $3.033 per gallon a year ago). (EIA Wholesale Heating Oil Prices are typically 20 cents higher)
>< Coal
US coal production totaled 18.8 million short tons (mmst), which is 5.8% higher than last week (17.8 mmst) and 2.1% higher than last year (18.4 mmst).
Year to date coal production totaled 10.5 mmst, which is 8.0% lower than last year.
Steel news:
[Steel prices were mixed last week, with Indian prices rising but Chinese prices falling. Raw materials prices were up slightly this week, while alloying and specialty metals prices fell. Steel production in the US was up from from last week, and is down from last year.]
>< American Iron and Steel Institute reports that US raw steel production was 1,830,000 tons and 76.4% of capacity (week ending January 11), up 0.4% from the 1,822,000 tons 74.0% the previous week. This represents a 0.1% decrease from the same period last year, when production was 1,832,000 tons and 76.5% capacity.
>< Year to date US production was 2,871,000 tons and 76.3% capacity utilization, which is up 0.1% from last year.
– #1 Heavy melt scrap was static at $379 per ton and #1 busheling scrap was even at $447 per ton.
– Iron Fines FOB Chinese ports remain around $135 per dry metric ton.
– Chinese steel prices continued trending down again last week, with the Chinese Long Product Index at 6050 (down 62 points, 1.0%) and the Chinese Flat Products Index at 5585 (down 23 points, 0.4%) (1-10-14 Steelguru.com).
>< Indian steel prices, however, were up in the last week, with the Indian Long Products Pricing at 8814 (up 59 points, 0.7%) and the Indian Flat Products at 8807 (up 13 points, 0.1%) (1-10-14 Steelguru.com).
>< Metals continue to be down this week. Aluminum, Nickel, Copper, and Zinc all lost with Tin gaining. Aluminum was down 1.3%, Copper was down 0.7%, Nickel was down 1.3%, Tin was up 1.2%, and Zinc was down 1.2% (London Metal Exchange, cash buyer, 1-10-14).
Automotive News:
+ China became the first country in which more than 20 million vehicles were sold in any given year as Toyota, General Motors, and Volkswagen delivered a record number of cars there.
Total deliveries rose 14% to 21.98 million units last year and may exceed 24 million in 2014. Last year’s sales of passenger vehicles, excluding buses and commercial trucks, climbed to 17.93 million — or 15% more than the U.S. auto industry — and may increase 9% to 11% this year.
+ Chevrolet’s Corvette Stingray and Silverado were named 2014 North American Car and Truck of the Year.
The Corvette faced the Mazda3 and the Cadillac CTS in the finals for the car award, while the Silverado beat out the Jeep Cherokee and Acura MDX in the truck/utility finals.
It was the first time Chevrolet swept the awards, although GM swept the awards in 2007 with the Saturn Aura and the Silverado. It also was GM’s sixth Car of the Year and its fourth Truck of the Year.
Two other automakers have swept the awards: Honda Motor Co. in 2006 with the Civic and Ridgeline and Ford Motor Co. with the Fusion Hybrid and Transit Connect in 2010.
+ General Motors is considering adding a small-displacement diesel engine to its Chevrolet and GMC 1500 pickups to boost fuel economy.
For comparison, the Ram EcoDiesel is expected to get an EPA highway fuel economy of around 28 MPG, while Ford is aiming at 30 MPG for its new lightweight F-150, which uses an aluminum body. The most fuel-efficient GM truck carries an EPA highway rating of 24 mpg.
Transportation News:
[Rail traffic rose year-on-year last week, and continues its steady pattern of year-on-year growth. Air transport is up globally, but the US domestic markets aren’t doing as well, lately. Overseas demand is up for both freight and passenger air travel, which was reflected in a record year for business at Airbus.]
+ The Association of American Railroads reported that U.S. rail traffic for 2013 saw record year-on-year growth in intermodal traffic but a slight full year decrease in carloadings.
U.S. rail intermodal volume totaled a record 12.8 million containers and trailers in 2013, up 4.6% over 2012.
Carloads totaled 14.6 million in 2013, down 0.5% from 2012.
Intermodal volume in 2013 was the highest on record, surpassing the record high totals of 2006 by 549,471 units.
+ The Association of American Railroads reported increased traffic for the week ending January 4, 2014.
U.S. railroads originated 246,846 carloads, up from last week, and up 2.1% from last year. Intermodal volume for the week totaled 186,878 trailers and containers, up from last week, and up 4.8% from last year.
Total cumulative 2014 US traffic is up 3.2% from last year.
Seven of the 10 carload commodity groups posted increases compared with the same week in 2013, led by petroleum and petroleum products, up 20.2%.
Canadian railroads reported 63,266 carloads and 42,105 intermodal loads, down 7.4% and up 0.4% from the same period last year.
Mexican railroads reported 10,524 carloads and 4,976 intermodal loads, up 3.4% and down 12.7% from the same period last year.
>< The International Air Transport Association (IATA) released November figures showing a 4.1% year-on-year expansion in global air passenger demand.
November’s numbers, however, are down from October’s 6.5% year-on-year growth.
US domestic traffic fell 1.2% in November versus November 2012. However, this decline is most likely linked to the timing of the Thanksgiving holiday, which was nearer to the end of the month, which caused some traffic associated with the holiday to slip into December.
+ The International Air Transport Association (IATA) released November figures showing a 6.1% year-on-year expansion in global air freight demand.
This is an even more improved rate of growth than October’s 4.4%, and continues an overall trend of improvement in 2013.
All regions reported growth except for Latin America and Africa. The strongest performing region was the Middle East where carriers reported a 16.5% improvement.
Asia-Pacific carriers, who account for some 40% of the market, reported 4.9% growth, more than doubling the 1.8% growth of October.
North American carriers reported a 2.5% year-on-year improvement in freight demand, which is down from 5.3% in October, but a definite improvement over the year-to-date performance, which is a contraction of 0.4% when compared to the first 11 months of 2012.
+ Airbus exceeded commercial targets in 2013, achieving a new record of 626 aircraft deliveries (493 A320 Family aircraft, 108 A330, 25 A380) to 93 customers (15 new) and a new industry record of 1,619 gross orders (377 A320ceo, 876 A320neo, 77 A330, 239 A350 XWB, 50 A380) beating the previous record in 2011 by 11 aircraft.
The year was also Airbus’ most valuable gross order intake (List price $240.5 billion US). By year end, the backlog had climbed to an industry wide record of 5,559 aircraft, valued at $809 billion US at list prices, or eight years production.
Aircraft deliveries in 2013 were up for the 12th year in a row, beating the initial target and surpassing the previous record set in 2012 (588) by an additional 38 aircraft.
At 2013 year end, Airbus commanded 51% gross market share (aircraft above 100 seats).
Asia News:
– The Markit Economics HSBC China Manufacturing PMI fell slightly this month to 50.5 in December from 50.8 last month, indicating slowing growth in operating conditions from last month.
New Orders and Output both rose this month, but the rate of growth eased from last month’s 8-month high. Domestic demand seemed to be driving new order growth, with marginal increases, while New Export Orders declined marginally for the first time in four months.
In spite of the increased ordering, employment numbers fell in December, albeit only at a marginal rate, mainly reflecting non-replacement of workers who voluntarily left.
Purchasing activity increased, because of higher production requirements, and pre-production inventories were allowed to decline.
The increase in work also contributed to a slight increase in backlogs of work, although the rate of accumulation eased to a 3-month low.
Input costs increased again this month, for the fifth month in a row. Some firms chose to pass on costs to customers, but weak demand drove output prices down for the first time in five months.
[The Chinese economy still shows signs of cooling. Improvements in work are still being seen, but at very slow growth rates. I expect this to continue over the next few months, as the government’s attempts to cool various sectors of industry play themselves out. These efforts at cooling will only serve to depress the survey numbers as the full effects get passed on]
+/- The Markit Economics JMMA Japan Manufacturing PMI improved to 55.2 in December, up from 55.1 last month, and the highest level since July 2006.
This month continues the longest sequence of growth in over three years, as the PMI has remained above 50 for ten consecutive months.
New Order growth in December, along with production, eased from November’s rate of improvement, but the level of expansion still remained above trend. Domestic demand and public works are cited as driving the new business
Backlogs of work increased again in November, increasing at the sharpest pace since April 2009.
Employment, which has remained stagnant for the last 3 months, grew this month at the sharpest pace in six and a half years, reflecting the sharp increase in demand and backlogs.
Input prices rose for the 12th straight month, and the price inflation hit a 33-month high. Output prices also rose this month, and at the sharpest pace since November 2008. The depreciation of the yen and rising raw materials prices, as well as increased staffing expenses are considered the sources of the rising prices.
[The Japanese economy is chugging along at an ever increasing rate. I still see that April’s sales tax rise is driving the numbers. New Orders are growing sharply, but businesses are hesitant to commit to hiring and purchasing. Employment, while up, isn’t keeping pace with order growth, and backlogs of work are massively increasing. One would expect that businesses would be working to accommodate the increases rather than resist them, if they truly thought the economy was recovering…. Further, price inflation is starting to get out of control. Input prices are exploding upward, and even output prices are beginning to rise. This will only serve to dampen the mood here shortly.]
>< The Markit Economics HSBC India Manufacturing PMI slowed to 50.7 from last month’s 51.3, indicating manufacturing expansion, but at a much slower rate.
New Orders and Production both grew for the second month in December, although only at a marginal rate. Export Orders grew for the third straight month.
Consumer goods were still the best performing sector of the economy.
Employment increased for the third month, although it was considered to be only marginal. Staffing increases this month were spread fairly evenly across all manufacturing sectors.
Input prices slowed in growth, although the price inflation was still quite robust, and was mainly attributed to rising raw materials prices. Output prices also increased in December, although at a very muted rate because of competition among manufacturers.
Backlogs of work rose again, with anecdotal evidence pointing to raw material shortages and power cuts as being the reasons.
[Consumers goods industries still dominate the slow growth being registered in the Indian economy. Previous manipulations of the rupee have resulted in price inflation and the stress of increasing prices is complicating the recovery.]
European News:
– The Markit Economics Retail PMI for the Eurozone is in. The Retail PMI Index is down slightly to 47.7 in December from last month’s 48.0.
This indicates a steeper contraction of retail sales values over the Eurozone, from about the same rate of contraction last month, as PMIs decreased in Germany (still up), rose in Italy (still down), and fell again in France (more sharply negative).
The numbers would have been worse, but for Italy, whose decline slowed significantly this month, and which covered declines for both France and Germany.
With the declines, employment suffered accordingly, continuing to fall this month, in spite of job growth in Germany, with continuing job shedding in France and Italy. The overall decline was the steepest since April.
Purchasing activity continued to decline for the 29th month running, although the decrease was the smallest over the period. Inventories, on the other hand, increased for the second time in three months, and to the greatest extent since May 2012.
Input prices continued to rise at a sharp rate, increasing to the second highest rate in 11 months.
Retail PMI data by country signaled some growth in Germany (50.7 from 52.3, at an 8 month low), greater contraction in France (46.1 from 49.6, a 37 month low), and a slowing decline for Italy (45.3 from 39.2, a 33 month high).
[Italy has slowed its descent, but is still the worst European performer. France, with continuing social upheaval, took a U-turn for the worse, continuing nearly two and a half years of declines. Germany is still showing growth, but continues to be pulled down by its partners. The worst thing about it to me is that these numbers indicate nearly continuous declines in retail sales over the past few years. At what point does bottom get reached? How much more can the citizenry take? How little can they operate on, considering the decline in consumer purchasing? The damage is significant and the losses irreplaceable. It will be a long time before they can recover what has been lost.]
>< The Markit Economics Manufacturing PMI for the Eurozone rose slightly this month to 52.7, showing growing manufacturing expansion, from last months 51.6.
The Eurozone manufacturing PMI managed continued to grow its industry this month, albeit slightly, to a 31-month high.
Germany, Ireland, the Netherlands, Italy, Spain, and Austria all posted growth, but France and Greece remained in contraction territory. The Netherlands, Germany, Ireland, Spain, Greece, and Italy all showed improving conditions, while Austria (still expanding) and France (already contracting) showed deteriorating conditions.
New Orders , Production, and New Export Orders all improved for the sixth consecutive month, and the rates of growth were the steepest in over 30 months.
With the improvements, manufacturers held off on job cutting, as the employment situation was broadly unchanged this month. Job creation was seen in Germany, Italy, and Ireland, while job shedding was seen in Spain, Greece, France, and Austria.
Pricing increased in December, with input prices and selling prices both continuing to rise.
Netherlands 57.0 (32 month high, expanding)
Germany 54.3 (30 month high, expanding)
Austria 54.1 (2 month low, expanding)
Ireland 53.5 (2 month high, expanding)
Italy 53.3 (32 month high, expanding)
Spain 50.8 (2 month high, expanding)
Greece 49.6 (52 month high, contracting)
France 47.0 (75 month low, contracting)
[Eurozone manufacturing is seeing a moderation of its declines, as just about everyone is showing some expansion. Hopefully it holds up, but it will be a while before things have “recovered” from the declines. France continues to suffer for its efforts to become “socialized,” with continuing declines while Greece might be finally bear its bottom.]
+ The Markit/CIPS Economics Manufacturing PMI for the UK declined to 57.3 in December from last month’s revised 58.1, signaling continuing expansion, but at a slower rate.
Output and New Orders rose for the ninth successive month, and are at levels that are among the highest in the survey’s 22-year history. New Export business also increased for the ninth month, although the domestic market still dominates demand.
Manufacturing output continued its increases, and managed to maintain a level of growth spread broadly across all manufacturing sectors.
Job gains continued for the eight straight month, with the rate of increase in hiring near last month’s 30 month record.
Input prices and Output prices both increased at faster rates in December. Purchase price inflation rose to a 28-month high, pushed up primarily by increased raw materials prices. Consequently, output charges also rose, reaching the fastest rise since September 2011.
[Production and growth continue to surge in the UK. Domestic production continues to drive the economy, which corresponds to a healthy return to basics, with exports now naturally rising to keep pace. As growth continues, hiring has picked up and confidence seems to be returning.]
– The Markit Economics Manufacturing PMI for Russia fell to 48.8 from last month’s 49.4, showing a steeper rate of manufacturing contraction.
The overall deterioration in business conditions was the strongest in four years as new order inflows stagnated, weighed down by a further drop in export demand.
New Orders, having grown for four months, contracted in December. New Export Orders declined for the fourth month running, and lackluster inflows of work led to ongoing spare capacity, which resulted in a decrease in backlogs of work.
Employment levels continued to decline, having dropped 13 times in 14 months, and at the fastest pace since August 2009.
[Russian manufacturing activity, after spending many months in slow-but-steady growth, has nosed over as new business has dried up. Increased competition from the UK and Germany and decreased European demand are weighing heavily on their economy.]
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Disclaimer: This report and a lot of its analyses have been created from a variety of source materials, some quoted directly. This report is intended as a précis of world activity for informational purposes only. While I may not have managed to acknowledge every source here, no attempt at plagiarism is intended.
Shade Tree Economist 