Category Archives: China

Trade

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Downward revisions for q4 GDP. And not how both imports and exports are down for the last 6 months or so as global trade decelerates:

Highlights

Revision estimates for fourth-quarter GDP will be coming down following an unexpectedly deep $59.8 billion trade deficit in December. Not helping the quarterly deficit are downward revisions to November and October that deepened the net deficit in those two months by $1.6 billion.

The trouble is equally severe on both sides of the report as exports in December fell 2.8 percent to $205.1 billion and imports rose 2.4 percent to $264.9 billion.

Food is the standout negative with imports at a record $12.6 billion in the month and exports, at $9.6 billion, the lowest monthly total since August 2010. This looks like a smoking gun over tariff tensions with China which may well have cut back its U.S. purchases.

The bilateral trade deficit with China for full year 2018 came in at just over $419 billion, which is much deeper than deficits of $375 and $347 billion in the prior two years.

Exports of services failed to help out December, unchanged at a still very strong $69.5 billion with imports of services, however, rising 1.0 percent in the month to $47.7 billion. Turning back to goods trade, vehicles are another major weakness with monthly exports at $12.3 billion for a second month and the lowest since September 2017 with imports of $32.1 billion at a record high.

Today’s headline $59.8 billion deficit is the deepest of the expansion, since October 2008. It is also $1.4 billion beneath Econoday’s consensus range and $2.2 billion deeper than the consensus. Net exports had only been a small drag in last week’s initial estimate for fourth-quarter GDP but today’s report is pointing to a more significant one. One final detail, the nation’s total trade gap in 2018 came to $621.0 billion, 12.4 percent deeper than $552.3 in 2017 and the deepest since 2008.

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Trade, Factory Orders, Pending home sales

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Can’t be making Tariff Man happy:

Highlights

The effects of cross-border trade actions have been difficult to pinpoint in the national economic data but outlines may be appearing in goods trade. The nation’s goods deficit swelled to a much larger-than-expected $79.5 billion in December as exports fell 2.8 percent in the month to $135.7 billion following 0.9 percent contraction in November. Agricultural exports, a focused area with China, fell 1.9 percent in the month and are down 5.5 percent year-on-year. The yearly rate for total exports is now in the negative column at minus 0.3 percent.

Adding to the downward trade pull from exports is a 2.4 percent rise in imports to $215.2 billion which are up 3.2 percent on the year. Here consumer goods are a sensitive area and are up 4.4 percent in the month to $55.5 billion though the year-on-year increase is modest at 0.9 percent. Imports of capital goods have also been climbing, up 4.9 percent on the year, but in contrast to consumer goods these goods represent business investment and will help future productivity.

For the quarterly GDP contribution, the goods deficit ran a monthly average of $75.7 billion in the fourth quarter vs $74.7 billion in the third quarter. Though this does point to another quarterly drag from trade, services for December have yet to be reported and based on U.S. strength here may yet pull the quarter even. Next Wednesday’s international trade report for December will post the services numbers as well as bilateral country data that are not published with this report.

Bad:

Highlights

Factory orders have significantly missed Econoday’s consensus for a second straight month, inching only 0.1 percent higher in December vs expectations for a 0.6 percent climb. In November when expectations were looking for a small gain, orders fell an initial 0.6 percent which is now revised to a 0.5 percent decline. October orders narrowly missed expectations, falling 2.1 percent against expectations for 2.0 percent.

The split between the report’s two main components shows a 1.0 percent dip for nondurable goods — the new data in today’s report where weakness is tied to both petroleum and coal as well as beverages — and a 1.2 percent rise for durable orders which is unchanged from last week’s advance report for this component.

But the gain for durable goods was skewed, as it often is, by a clump of aircraft orders in the month. Vehicles were also strong and when excluding these and aircraft as well as all other transportation equipment, orders fell 0.6 percent in December following a 1.3 percent drop in November.

A glaring weakness in December and November orders are sharp 1.0 percent and 1.1 percent declines for core capital goods orders (nondefense ex-aircraft). This is telling evidence that business investment is down which in turn may well betray a downturn in business confidence. And there’s an important revision in today’s report that will be trimming back estimates for nonresidential investment in tomorrow’s fourth-quarter GDP report as December shipments for this series, initially at a 0.5 percent gain in last week’s advance report, are now revised to no change. November stands at a 0.2 percent decrease for core shipments.

The third quarter was not strong for the factory sector notwithstanding, however, the 0.8 percent auto-related surge in December manufacturing production (previously released as part of the industrial production report). Manufacturing is disproportionately exposed to global demand and sector’s slump is a convincing reflection of general slowing in foreign economies, something that the Federal Reserve underscored as a key reason for its January downshift to neutral monetary policy.


Still trending down and down vs last year:

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Car sales, HK, China default, capex, EU business lending, EU sentiment, Credit card data

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Chinese state company defaults offshore, first time in 20 years

(FT) A Chinese state-owned enterprise from the country’s remote north-west has failed to repay a US dollar bond in Hong Kong, the first offshore default in 20 years and the latest sign investors can no longer rely on Chinese authorities to bail out state groups. Qinghai Provincial Investment Group defaulted on a $10.9m interest payment due on the Hong Kong note on Friday, then missed a separate principal and interest payment on a Rmb20m ($3m) onshore renminbi bond that matured on Monday, according to Caixin.

Tariff Fears Led U.S. Manufacturers to Trim Spending

(WSJ) Private-sector companies said increased tariffs and trade tensions have led them to reduce capital expenditures by an average of 1.2%, according to the Survey of Business Uncertainty. For manufacturers, the impact was larger, with a 4.2% impact on capital expenditures, according to the survey. The Atlanta Fed study finds that a rising proportion of businesses are trimming spending in response to tariff concerns, with 52% either postponing or dropping spending plans in the January survey, compared with 31% in a July questionnaire.

Euro zone business lending growth slows sharply: ECB

(Reuters) Corporate lending expanded by 3.3 percent in January, well below December’s 3.9 percent reading and its post-crisis peak of 4.3 percent hit in September. Credit growth to households meanwhile held steady at 3.2 percent, the ECB data showed. The ECB last month warned that the growth outlook is deteriorating quickly, suggesting that the bloc’s biggest slowdown in half a decade may be longer and deeper than feared. The annual growth rate of the M3 measure of money supply, which often foreshadows future activity, slowed to 3.8 percent from 4.1 percent in December.

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*exports to China, Philly Fed, US home sales, durable goods orders

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Asia’s exports to China plunge as economy stumbles

(WSJ) Japan’s exports to China in January sank 17.4% on the year to 958.1 billion yen ($8.65 billion), accelerating from December’s 7% drop. South Korean exports to China in January slid 19% on the year, a steeper rate than in the previous two months of decline. Taiwan’s mainland-bound shipments, which make up 40% of its total, also fell for the third consecutive month in January by 7.5%. Singapore suffered a 25% plunge. Thailand saw a second straight monthly drop in December, declining 7.3% on weaker exports of IT components. Vietnam was the odd man out, with its first increase in three months in January.

The global slowdown includes the US:

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 1.2 percent from December to a seasonally adjusted annual rate of 4.94 million in January. Sales are now down 8.5 percent from a year ago (5.40 million in January 2018).


Not good:

Highlights

The 1.2 percent headline rise in December durable goods masks weakness for business investment. New orders for core capital goods sank an unexpected 0.7 percent that falls well below Econoday’s consensus range. Magnifying what may be an emerging pivot lower for capital goods is a sharp downward revision to November, now at minus 1.0 percent.

Significant declines for a second month in a row were posted by machinery, computers as well as communications equipment which are all central to the capital goods group. But these are orders. Shipments of core capital goods actually rose 0.5 percent which will help offset a 0.2 percent shipment decline in November and may actually give a small boost to nonresidential fixed investment in next week’s fourth-quarter GDP report.

Jumping more than 50 percent, aircraft orders, as they often do in the durable goods report, skewed December’s headline higher. Vehicle orders were also strong, rising 2.1 percent and, together with the previously released vehicle surge in the manufacturing component of the industrial production report, point to a burst of late-year activity in the auto sector. But when excluding aircraft and vehicles as well as all other transportation equipment, orders inched only 0.1 percent higher in December vs Econoday’s consensus for a 0.2 percent gain.

An underlying softness is also indicated by total unfilled orders which have posted small declines in each of the last three reports. Unwanted inventories, however, do not appear to be a threat, rising only 0.2 percent vs a 0.8 percent increase for total shipments that pulls the inventory-to-shipments ratio down to 1.60 from November’s 1.61.

The factory sector was the economy’s star performer in 2018 and, on the surface at least, ended the year in strength especially for autos. But the weakness in business investment, and its negative implications for future productivity, point to hesitance among businesses which is consistent perhaps with easing indications for business confidence.

Flattened out below 2008 levels, not adjusted for inflation:

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Japan exports, California home sales, Arizona home sales

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Japan exports hit by biggest fall in 2 years on weak China demand

(Reuters) Japan’s exports fell 8.4 percent in the year to January. It was the sharpest annual decline since October 2016, and followed a revised 3.9 percent year-on-year drop last December. Japanese exports to China, Japan’s biggest trading partner, fell 17.4 percent in the year to January. Slowing shipments ahead of Chinese New Year holidays likely helped slow China-bound exports, finance ministry officials said. Japan’s shipments to Asia, which account for more than half of overall exports, fell 13.1 percent in January. U.S.-bound exports rose 6.8 percent in the year to January, led by shipments of cars.

California Existing Homes in January: “Home sales fall to lowest level in more than 10 years”

The CAR reported: California home sales fall to lowest level in more than 10 years, C.A.R. reports

Housing demand in California remained subdued for the ninth consecutive month in January as economic and market uncertainties sent home sales to their lowest level since April 2008, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

The Arizona Regional Multiple Listing Service (ARMLS) reports (“Stats Report”):

1) Overall sales declined to 5,357 from 6,082 in January 2018. Sales were down 16.3% from December, and down 11.9% from January 2018.

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China car sales, Euro sector balances

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China Total Vehicle Sales

Vehicle sales in China tumbled 15.8 percent from a year earlier to 2.37 million in January 2019, following a 13 percent drop in the previous month. It was the seventh consecutive annual decrease in vehicle sales in the world’s largest auto market and the sharpest since January 2012 amid slowing economic growth. Still, new energy vehicle sales jumped 140 percent to 95,700 units, making the sector the best performing one among the whole automotive industry. Sales of pure electric vehicles increased 179.7 percent to 75,000 units and those of plug-in hybrids grew 54.6 percent to 21,000 units.

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NFIB survey, China, UK, California home sales, Rig count

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Trumped up expectations fading:

Highlights

Doubts about future economic growth diminished optimism among small business owners to the lowest level in 26 months, according to the NFIB’s Small Business Optimism Index, which fell 3.2 points in January to 101.2, below consensus expectations as well as the range of analysts’ forecasts. Though still above the long-term average of 98, the optimism reading has retreated sharply from the 45-year high set last August, and the fall in January mainly reflects a 10-point drop to a net 6 percent in expectations that the economy will improve, a 7-point decline to a net 16 percent in expectations that real sales will be higher, and a 7-point drop to a net 1 percent in plans to increase inventories.

The decline was broad-based, however, with 7 of the 10 components of the index retreating: plans to increase employment fell 5 points to a net 18, current job openings fell 4 points to a net 35 percent, the view that now is a good time to expand was down 4 points to a net 20 percent, and the view that current inventory is too low fell 2 points to a net minus 3 percent.

China’s Lunar New Year sales lose steam as economy slumps

(Nikkei) China’s Lunar New Year holidays through Sunday saw single-digit consumption growth for the first time on record, as an economic slump dampened one of the year’s biggest shopping seasons. Sales in the retail and food-and-drink industries grew 8.5% to 1.005 trillion yuan ($149 billion) over the weeklong holiday down 1.7 percentage points from 2018 and the lowest growth rate in data going back to 2005 when such data was first collected. The number of people traveling within China rose only around 7% year on year to 415 million, compared with growth of around 12% in 2018.

Slowing global trade more than Brexit?

Southern California Home Sales Were The Lowest For A December In 11 Years

New data released today by CoreLogic shows a total of 15,781 new and existing houses and condos were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in December 2018. This number is down 8.2 percent month over month from 17,192 sales in November 2018,* and down 20.3 percent year over year from 19,800 sales in December 2017. Total Southern California home sales in December were the lowest for that month since December 2007 when 13,240 homes were sold.

Sales have fallen on a year-over-year basis for the last five consecutive months and in seven of the last eight months.

Stabilizing at current levels, which means no growth in capital expenditures:

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Wealth share, Vehicle sales, US retail sales, US trade, German trade, HK index, UK, US Consumer credit

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The ‘labor market’ is not a ‘fair game’ as people need to work to eat, and business only needs to hire if it likes the return prospects, so real wages should be expected to remain depressed without some form of outside support, which broke down in the 80’s with globalization policies, and the share of GDP going to capital began to rise:


General weakness continues:


US imports way down, as reflected in general global weakness, and same for weak US exports. And also indicative of US weakness:

Highlights

A sharp pull back in imports, not strength in exports, led a much sharper-than-expected fall in November’s trade deficit to $49.3 billion. Imports, reflecting price declines for petroleum as well as a $4.3 billion drop in consumer goods especially cell phones, fell $7.7 billion in the month while exports also fell, down $1.3 billion and largely reflecting oil-related declines for supplies and materials.

Germany Balance of Trade

The German trade surplus decreased to EUR 13.9 billion in December 2018 from EUR 18.4 billion in the same month a year earlier. It was the smallest trade surplus since January 2016, mainly due to a sharp decline in exports.

Hong Kong Private Sector PMI

The seasonally adjusted Nikkei Hong Kong PMI inched higher to 48.2 in January 2019 from 48.0 in the previous month and marking the tenth straight month of contraction. New orders fell again, accompanied by lower sales to overseas markets, including China. At the same time, output continued to decline, while firms scaled back on purchasing activity and hiring.

Bank of England sees weakest UK outlook since 2009 on Brexit, global slowdown

The Bank of England said Britain faces its weakest economic growth in a decade this year as uncertainty over Brexit mounts and the global economy slows.

United States Consumer Credit Change

Consumer credit in the United States went up by USD 16.55 billion in December 2018, down from an upwardly revised USD 22.41 billion gain in the previous month and slightly below market expectations of a USD 17.0 billion rise. It was the lowest increase in three months. Revolving credit including credit card borrowing climbed USD 1.7 billion, compared to an upwardly revised USD 4.9 billion advance in November. Meantime, non-revolving credit including loans for education and automobiles jumped by USD 14.9 billion, after rising an upwardly revised USD 17.5 billion in the prior month.

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Euro zone, China, Amazon, US employment

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Lots of headlines pointing to corporate weakness:

Amazon sales outlook falls short after record holiday quarter

(Reuters) Fast and free shipping helped the world’s largest online retailer boost revenue by 20 percent. Net income jumped 63 percent to $3 billion for the fourth quarter. Its international operating loss shrunk to $642 million in the quarter from $919 million a year earlier. The company forecast net sales of between $56 billion and $60 billion for the first quarter. Overall, net sales for the fourth quarter were $72.38 billion and beat analysts’ average estimate of $71.87 billion on the back of a strong holiday season, which includes the major U.S. shopping event Black Friday.

Seems to be holding up as the rest of the global economy is fading fast. The revisions are interesting, best not to judge a number until it’s at least a month old:

Seems to be nudging back up since the tax cuts, or maybe it all gets revised down next month to make it look more like the other indicators?

Private payrolls alone tell a somewhat different story:

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News headlines- weakness continues, Mtg apps, Pending home sales, Confidence, ADP employment, MMT articles

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Apple says China sales fell 27% last quarter

(Nikkei) Apple’s net sales in greater China, including the mainland, Hong Kong and Taiwan, fell 27% on the year to $13.17 billion for the three months ended Dec. 29 in results announced Tuesday. This marked the first downturn there in six quarters. Combined sales elsewhere, including the U.S., Europe and Japan, grew 1% to $71.1 billion, pointing to China as the central cause of the sluggish quarterly results. Greater China as a share of Apple’s sales shrank to 16% from 20%. Total sales for the quarter dropped 5% to $84.3 billion.

3M Lowers Profit Outlook for 2019

(WSJ) “Some of the things that we were expecting on tariffs haven’t turned out quite as bad as what we were estimating,” Financial Chief Nick Gangestad said. 3M now expects $70 million in higher raw material costs this year, including the effect of tariffs, compared with $100 million previously. But 3M said it was seeing a slowdown in some important markets including China and weaker demand globally in industries such as car and electronics production. The company expects potentially lower revenue growth and earnings of $10.45 to $10.90 a share this year, compared with its prior goal of $10.60 to $11.05 a share.

U.S. auto sales seen down in January: J.D. Power, LMC

(Reuters) U.S. auto sales in January are expected to fall about 1 percent from the same month in 2018, partly due to uncertainty around government shutdown causing some customers to delay purchases, according to industry consultants J.D. Power and LMC Automotive. Total vehicle sales in January are estimated to be about 1,141,300 vehicles, the consultancies said on Tuesday. Retail sales are expected to fall 2.4 percent to 864,300 vehicles in January, while the overall total seasonally adjusted annualized rate for vehicles is expected to be about 16.8 million vehicles, down 2.3 percent from a year ago.

Highlights

Purchase applications for home mortgages fell a seasonally adjusted 2 percent in the January 25 week, continuing the prior week’s cooling from the highest volume since 2010 seen at the start of the year. Year-on-year, unadjusted purchase applications gave up a 13 percent gain recorded in the prior week and plunged back into negative territory to a level 7 percent lower than a year ago. Applications for refinancing fell 6 percent from the prior week, pulling down the refinance share of mortgage activity by 2.5 percentage points to 42.0 percent. The average interest rate for 30-year fixed rate conforming mortgages ($484,350 or less) rose 1 basis point from the prior week to 4.75 percent. Note that results for the week were affected by the Martin Luther King Jr. Holiday, for which adjustments were made but which may still have distorted some comparisons. Despite the cooling in the last 2 weeks, purchase applications remain about 6 percent above the long term average and could give a boost to the housing market in the upcoming spring buying and selling season.

Way below expectations:

NAR: Pending Home Sales Index Decreased 2.2% in December

Still high but softening rapidly:


This forecast for Friday’s employment report is down from last month but still reasonably strong:

Highlights

ADP estimates that private payroll growth in Friday’s employment report for January will rise a higher-than-expected 213,000. Forecasters pegged ADP’s January estimate at 174,000 and see Friday’s private payrolls coming in at 160,000 vs 301,000 in December.

These seem to be popping up everywhere, with none of them getting it right… ;)

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