Category Archives: Retail Sales

CH News – 09.13.11

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Ok news so far for August, some slowing but no sign of a hard landing yet!

On Tue, Sep 13, 2011 at 8:03 AM, Evelyn Richards wrote:
 

HIGHLIGHTS
-China’s retail sales up 17% in Aug
-China’s fixed asset investment up 25% in Jan-Aug
-Yuan Forwards Decline Most in a Month on Greece Debt Concern
-China Aims to Play Role in Stabilizing Europe, Researcher Says
-China August Fiscal Revenue Rises 34.3% on Year, Ministry Says
-China Called on as Emergency Lender as Italy Faces Crisis
-China unlikely to loosen monetary policy
 

China’s retail sales up 17% in Aug
Sep. 13, 2011 (China Knowledge) – China’s retail sales reached RMB 1.47 trillion
in August this year, up 17% year-on-year, said the National Bureau of
Statistics.

Total retail sales in urban areas rose 17.1% year-on-year to RMB 1.28 trillion
last month, while retail sales in rural areas rose 16.4% to RMB 192.2 billion in
the same period.

Retail sales in the catering industry also grew and increased to 16.7%
year-on-year to RMB 171.7 billion in August, while retail sales of consumer
goods rose 17% to RMB 1.3 trillion.

Last month, the retails sales of automobiles continued to top the country’s
retails sales list, reaching RMB 174.6 billion, up 12.4% year-on-year, while
retail sales of oil and related products came in second, hitting RMB 126.7
billion, with a growth of 38.4%.

In the first eight months of this year, the country’s retail sales totaled RMB
11.49 trillion, 16.9% more than in the corresponding period of last year.
Retails sales of automobiles grew 14.9% to RMB 1.29 trillion during the period,
and retail sales of oil and related products amounted to RMB 928.2 billion,
39.5%.
 

China’s fixed asset investment up 25% in Jan-Aug
Sep. 13, 2011 (China Knowledge) – China’s total fixed asset investment surged
25% year on year to RMB 18.06 trillion in the first eight months of this year,
according to statistics released by the National Bureau of Statistics.

The growth rate was 0.4 percentage points lower than that in the first seven
months.

Last month, the country’s fixed asset investment climbed 1.16% from July.

Fixed asset investment in primary industry saw a 23% increase, hitting RMB 417.6
billion, while investment in secondary and investment in tertiary industry grew
27% and 23.6% year on year to RMB 7.92 trillion and RMB 9.73 trillion,
respectively, according to the latest statistics.

The country’s investment in the industrial sector jumped 26.6% year-on-year to
RMB 7.71 trillion, including RMB 638.9 billion in the mining sector and RMB 6.24
trillion in the manufacturing, up 15.9% and 32.2% year on year, respectively.
The power, gas and water producing and supplying industry saw its fixed-asset
investment climb 1.9% year on year to RMB 833.5 billion in the first eight
months.

In the first eight months, investment in real estate development surged up 33.2%
year on year to RMB 3.78 trillion.

Meanwhile, fixed asset investment in China’s eastern, central and western areas
booked notable year-on year increases of 22.6%, 30.1% and 29.4%, respectively.
 

Yuan Forwards Decline Most in a Month on Greece Debt Concern
Sept. 13 (Bloomberg) — China’s yuan forwards dropped the
most in a month amid speculation Greece is nearing default,
which may prompt policy makers to slow the currency’s
appreciation.
The People’s Bank of China set the daily reference rate
0.09 percent lower today, the most in almost four weeks, as
Asian currencies weakened. The chance of a default by Greece in
the next five years has soared to 98 percent as Prime Minister
George Papandreou fails to reassure investors that his country
can survive the euro-region crisis, credit-default swaps showed.
“What you may see actually is a weaker pace of
appreciation,” said Leong Sook Mei, regional head of global
currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in
Singapore. “There was lots of risk aversion with regards to the
Greece issue. The overall trend of appreciation won’t stop as
yet until we see decisive signs of Chinese growth coming off and
inflation easing.”
Twelve-month non-deliverable forwards slid 0.33 percent to
6.3305 per dollar as of 4:58 p.m. in Hong Kong, according to
data compiled by Bloomberg. The premium to the onshore spot rate
was 1.1 percent, compared with 1.2 percent yesterday.
The yuan dropped 0.17 percent to 6.3991 per dollar in
Shanghai, according to the China Foreign Exchange Trade System.
In Hong Kong’s offshore market, the yuan declined 0.02 percent
to 6.3855.
A central bank statement yesterday that inflation is still
too high is “hawkish,” Tim Condon, head of Asia research at
ING Groep NV, said in an e-mailed note today.
Policy makers will want to see a second consecutive month
of lower headline inflation before declaring “victory,” Condon
wrote. He reiterated the bank’s call for one more 25-basis point
increase in benchmark interest rates by the end of the year.
China’s inflation eased in August, rising 6.2 percent from
a year earlier, compared with 6.5 percent in July, which was the
fastest since June 2008.
 

China Aims to Play Role in Stabilizing Europe, Researcher Says
Sept. 13 (Bloomberg) — China is playing its role as a
responsible major world economy and is trying to help stabilize
global confidence by supporting European governments, Zhang
Yansheng, a researcher affiliated with the nation’s top economic
planning agency, said today.
Chinese policy makers are thinking in a “global context”
and about the need to prevent a “domino effect” in the debt
crisis, Zhang said in Beijing today when asked to comment on
reports that China is in talks to make investments in Italy that
may include government bonds. If Italy “falls” it may drag
down Europe, the world and China’s economy, he said.
There is a limit to what China can do to help, Zhang said.
Zhang, who is a researcher at the Institute of Foreign
Economic Research affiliated to the National Development and
Reform Commission, said he was giving his own views on the
matter.
 

China August Fiscal Revenue Rises 34.3% on Year, Ministry Says
Sept. 13 (Bloomberg) — China’s August fiscal revenue rose
34.3 percent from a year earlier to 754.6 billion yuan and
fiscal expenditure rose 25.9 percent to 807.7 billion yuan,
according to a statement on the Ministry of Finance’s website
today.
Fiscal revenue for the first eight months this year rose
30.9 percent to 7.4 trillion yuan, the statement said.
 

China Called on as Emergency Lender as Italy Faces Crisis
Sept. 13 (Bloomberg Businessweek) — China’s status as the fastest- growing major economy and holder of the largest foreign-exchange reserves lured another bailout candidate as Italy struggles to avoid a collapse in investor confidence.

Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said yesterday, adding that bonds weren’t the focus. Finance Minister Giulio Tremonti met with Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said by phone today, declining to say exactly when the talks took place or what was discussed.

Foreign Ministry spokeswoman Jiang Yu, asked about buying Italian assets, said Europe is one of China’s main investment destinations, without specifically mentioning Italy.

Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that turned to China since the 2007 collapse in U.S. mortgage securities set off a crisis that widened to engulf euro-region sovereign debtors. Stocks rose on the potential Chinese investment in Italy even as previous commitments failed to have a lasting impact.

“It’s a clear pattern of China’s intention to help stabilize the euro area,” said Nicholas Zhu, head of macro- commodity research for Asia at Australia & New Zealand Banking Group in Shanghai and a former World Bank economist. “The benefit to China is that it will help in the perception of host countries if China is viewed as a responsible stakeholder in the global community.”

Bond Auction
Italy today is auctioning as much as 7 billion euros ($10 billion) of bonds to help pay for 14.5 billion euros of bonds maturing on Sept. 15. The euro region’s third-largest economy sold 11.5 billion euros of bills yesterday and priced its one- year notes to yield 4.153 percent, up from 2.959 percent at the previous auction last month.

The yield on Italy’s 10-year bond rose to 5.69 percent as of 10:01 a.m. in Rome, pushing the spread with the equivalent German securities up 13 basis points to 396 basis points. The MSCI Asia Pacific index of stocks advanced 0.3 percent as of 4:50 p.m. in Tokyo after the Standard & Poor’s 500 index gained 0.7 percent overnight.

Chinese Image
For China, any purchases of European debt may allow the world’s largest exporter to be seen as helpful as it rebuffs calls to allow its exchange rate to appreciate at a faster pace. The world’s second largest economy has amassed record currency reserves of $3.2 trillion by selling yuan to limit gains.

Chinese policy makers are thinking in a “global context” and about the need to prevent a “domino effect” in the European debt crisis, Zhang Yansheng, a researcher affiliated with the nation’s top economic planning agency, said today.

China’s central bank referred questions to the State Administration of Foreign Exchange, which didn’t respond to a request for comment. China Investment Corp., the nation’s sovereign-wealth fund, also didn’t respond.

Italy’s bond-yields rose to a euro-era record last month as the region’s sovereign debt crisis spread from Greece, the first to receive a European Union-led bailout. Prime Minister Silvio Berlusconi’s government rushed a 54 billion-euro austerity package to convince the European Central Bank to buy its debt.

Redemptions
Even so, the size of Italy’s debt — at 1.9 trillion euros more than Spain, Greece, Ireland and Portugal combined — leaves it vulnerable to any rise in borrowing costs as it refinances maturing securities. The country still needs to sell about 70 billion euros of debt this year to cover its deficit and finance redemptions.

“We have heard this story before with regard to the likes of Spanish and Portuguese bonds, and in the end it was ECB buying and EU bailouts that seemed to have taken place rather than anything with a Chinese influence,” Gary Jenkins, a strategist at Evolution Securities in London, wrote in a research note.

Any Chinese purchases of euro-region debt to date haven’t produced a lasting cut in yield premiums for Greece, Portugal or Spain.

The extra yield investors demand to buy Greek 10-year debt over German bunds is about 23 percentage points, up from 14 percentage points three months ago. The equivalent spread for Portugal over Germany is 9.5 percentage points, up from 7.7 points over that period. Spain’s gap rose to 3.6 points from 2.5 points.

Too Big
“The issue with Europe is bigger than China alone can help with,” said Ju Wang, a fixed-income strategist at Barclays Capital in Singapore, adding that Italy’s debt load alone is a sum exceeding half the Chinese foreign-exchange reserves. “China probably will continue to help to shore up the euro, but its involvement in direct purchases of troubled Europe debt is unlikely to be too aggressive.”

If Italy “falls” it may drag down Europe, the world and China’s economy, said Zhang, a researcher at the Institute of Foreign Economic Research affiliated to the National Development and Reform Commission.

Japanese Finance Minister Jun Azumi said today that European policy makers should decide themselves whether they need fiscal assistance from Japan. U.S. Treasury Secretary Timothy F. Geithner will travel to Poland on Sept. 16 to participate in a meeting of European government finance officials trying to contain the region’s debt crisis.

‘Helping Hand’
Premier Wen Jiabao said in June that China can offer “a helping hand” to Europe by buying a limited volume of sovereign bonds. The Asian nation pledged that month to buy Hungarian government bonds and agreed to extend a 1 billion euro loan for the financing of development projects in the European country that needed an International Monetary Fund-led bailout in 2008.

Spain’s prime minister secured a Chinese pledge to invest in his nation’s faltering savings banks and in government debt on an April visit to Beijing.

In October, Wen said China will buy Greek bonds to support Greece’s shipping industry, while Chinese state-run banks agreed to $267.8 million in loans to three Greek shippers. President Hu Jintao visited Portugal in November and said China is “available to support, through concrete measures, Portuguese efforts to face the impacts caused by the international financial crisis.”

Diversification
Any Chinese purchases of euro-denominated debt may help it diversify its reserves away from dollars. The biggest foreign owner of U.S. government debt has doubled its holdings of Treasuries in the three years through June to about $1.17 trillion.

China is playing a “white knight” role in assisting Europe and buying itself goodwill that will enable it to purchase more sensitive European assets such as technology companies, according to Stamford, Connecticut-based Faros Trading in a June report. The European Union still has an arms embargo on China, imposed after the Tiananmen Square massacre in 1989.

Some of China’s investments have returned losses. China Investment Corp. paid $3 billion for a 9.4 percent stake in private equity firm Blackstone in 2007 at a 4.5 percent discount to its initial public offering price of $31. The stock traded at $12.31 yesterday, which translates to a loss of more than $1.7 billion loss for China, according to data compiled by Bloomberg.

CIC, as the wealth fund is known, widened its investment horizon to 10 years from five years, the company said in July.

“They are trying to be helpful by diversifying a little within the euro zone community,” Michael Spence, a Nobel laureate in economics, said while attending a conference in Beijing today. “With relatively high yields, if there is a credible plan in Italy — Italy has very low private debt, its public debt is relatively stable if they adopt sensible policies — so could be quite a good investment as well.”
 

China unlikely to loosen monetary policy
Sept 13 (The Australian) – CHINA’s central bank says stabilising prices remains its priority, reinforcing signs that Beijing is unlikely to loosen the reins on the world’s No. 2 economy any time soon despite mounting global uncertainties.

In a statement last night, the People’s Bank of China also gave fresh acknowledgment that its traditional measuring tools have failed to keep up with recent changes in the Chinese financial system. The bank said it is considering issuing an adjusted version of its benchmark measure of the supply of money in the economy to help plug the resulting gaps.

The PBOC’s statement came after economic data over the previous three days showing growth and inflation both easing somewhat, but remaining strong.

The data reinforced a growing consensus among economists that Beijing has likely pressed pause on any big monetary policy moves — after a series of rate increases over the last year — as it balances concerns about the weakness in advanced economies like Europe and the US against ongoing wariness over consumer prices at home.

“There is some control over the causes of rising prices, but they haven’t been eliminated,” the PBOC said last night. “Inflation remains high and stabilising prices remains the top macro-control policy.” The bank said China needs to continue its “prudent” monetary policy and maintain steady and appropriate credit growth.

Data issued by the PBOC on Sunday showed that money-supply growth slowed further last month, which the central bank said was in line with its “prudent” monetary policy. China’s broadest measure of money supply, M2, was up 13.5 per cent at the end of August from a year earlier, slower than the 14.7 per cent rise at the end of July, and below economists’ expectations of 14.5 per cent.

But the PBOC’s statement last night also said it is researching the addition of an “M2-Plus” measure of money supply, because the current M2 measure — which gauges bank deposits and cash in circulation — doesn’t capture funds in wealth management products, which have expanded dramatically this year. That means the M2 readings have understated the total growth in money, which is a factor in inflation.

“The official M2 growth number has become a little less reliable than it once was,” said Standard Chartered economists Li Wei and Stephen Green in a research note last week.

The PBOC noted that growth in lending hasn’t been slow so far this year, pointing out that bank lending in August was up about 10 billion yuan ($1.5bn) from the same month last year, when monetary policy was still loose.

“Overall liquidity conditions are appropriate and banks’ provision levels are normal,” the PBOC said. China’s financial institutions issued 548.5bn yuan of new yuan loans in August, up from 493bn yuan in July and above economists’ expectations of 500bn yuan.

China’s consumer price index rose 6.2 per cent in August from a year earlier, slowing from July’s 6.5 per cent increase, which was the fastest rise in more than three years.

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FED Dudley comments

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*DJ Fed’s Dudley: Drop In Market Rates A Plus For Economy

He forgets about the interest income channels

*DJ Dudley: US Economic Growth Slower Than Expected

Yes, but still higher than the first half, as recently revised

*DJ Dudley: Has Revised Down Expectations Of Growth

Yes, but still higher than the first half when corporate earnings were relatively strong

*DJ Dudley: NY Region Growing Faster Than Nation
*DJ Dudley: NY Region Has Grown At ‘Slow Pace’

Yes, and better than the first half, helped by auto production resuming after earthquake delays

Retail sales were ‘normal’

The 9% federal budget deficit continues to provide reasonably support for modest GDP growth

The Fed’s ‘forecast’ for unchanged rates for two years is just that. It’s their expectation for rates based
on their outlook.

And while the Fed’s outlook will change as conditions change, markets are not taking it that way.

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Global indicators not so good this am

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The hope is that the entire soft spot is a temporary consequence of the earthquake, and that China holds together, and that global austerity isn’t sufficient to slow overall growth:

Headlines:

Bank of England warns against quick fix to crisis (AP)
U.K. Services Drop Most Since January 2010 on Extra Holiday (Bloomberg)
U.K. Mortgage Approvals Increased Less Than Forecast in May (Bloomberg)
Bank of England Split on Interest Rate Policy as Consumers Struggle (Telegraph)
PBOC Adviser Sees China ‘Chronic’ Inflation Lasting Decade
Why China’s Heading for a Hard Landing, Part 3: A. Gary Shilling
Sweden: Slowdown After Strong Growth
Europe June Economic Confidence Drops to Lowest in 8 Months
Trichet Urges New Vision of Europe as Greeks Protest Austerity
Up to 15 EU banks to fail stress test
ECB’s Stark Rejects Brady-Bond Solution for Greece, Zeit Reports
French Greek Rollover Plan Depends on No Default Rating
French Output Grew Less Than Estimated on Consumer Spending
Growth of German retail sales maintained in June
French Jobless Claims Increase for First Time in Five Months
Spanish premier proposes new economic measures
Portugal plans tougher austerity measures
Spanish Existing Home Prices Decline 1.8% in Second Quarter
Mortgage Applications Dipped Last Week

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ECB debt buying plan suffers fresh setback

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ECB debt buying plan suffers fresh setback

Another silly headline that completely misses the point of monetary operations.

The ‘debt buying plan’ is a purely technical move to do what is called ‘offset operating factors’ as a means to hitting the ECB’s interest rate targets.

The quantity of securities offered to do this is entirely inconsequential. As always, for a central bank, the monopoly supplier of net reserves for its currency of issue, it’s about price (interest rates) and not quantities. And the only possible ‘inflationary impact’ is via the interest rate channels:

(FT) — The European Central Bank faced embarrassment on Tuesday after failing for a second consecutive week to neutralise fully the inflationary impact of funds it had spent buying government bonds to combat the region’s debt crisis. On Tuesday, the ECB was due to reabsorb €76bn – the total amount spent under the bond-buying programme so far. But banks only offered €62bn. Last week, the ECB had also failed to reabsorb the required amount. In total, such operations have failed five times in the past year.

The latest setback was the result of higher market interest rates, which deterred banks from parking funds at the ECB. It could fuel ECB nervousness about its bond buying.

Europe Services, Manufacturing Growth Accelerated in April

(Bloomberg) — European services and manufacturing growth accelerated in April. A composite index based on a survey of euro-area purchasing managers in both industries rose to 57.8 from 57.6 in March, Markit Economics said. That’s in line with an initial estimate on April 19.

They call the above an acceleration, I suppose because it fell in March:

The euro-area services indicator fell to 56.7 from 57.2 in March, Markit said, below a preliminary reading of 56.9 released last month. The manufacturing gauge increased to 58 from 57.5. In Germany, which has fueled the region’s recovery, a manufacturing indicator rose to 62 from 60.9 in March, while a services gauge slipped to 56.8 from 60.1.

Europe Retail Sales Decline Most in Almost a Year on Oil

Note the ‘and government austerity measures’ didn’t make the headline:

(Bloomberg) — European retail sales declined the most in almost a year in March as higher oil prices and government austerity measures curbed consumer spending. Sales in the 17-nation euro region fell 1 percent from the previous month after a revised 0.3 percent increase in February. March sales dropped 1.7 percent from a year earlier. Among services companies, “expectations for their activity levels in 12 months’ time slipped for the second successive month to reach a six-month low,” Markit said in a report. German retail sales declined 2.1 percent in March from February, when they fell 0.4 percent, today’s Eurostat report showed. In France, sales dropped 1 percent. Spanish sales fell 1.4 percent, while Ireland saw a 0.6 percent increase.

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Japan’s new vehicle sales mark largest fall in April

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All looking very weak, probably weaker than expectations, and the (modest) new spending appears to be paid for by reductions in other spending, so no fiscal response yet.

Headlines:

Japan’s new vehicle sales mark largest fall in April
Japan’s Wages Fall, Highlighting Risks to Economic Recovery
Japan Passes Y4tln Emergency Budget, But Political Standoff Not Over
Domestic Auto Sales Fall 51% In April

Japan’s new vehicle sales mark largest fall in April

Workers give the final checkup on the cars of Honda Accord Tourer at Honda Motor Co.’s Saitama Factory in Sayama, north of Tokyo, Monday, April 18, 2011.(AP Photo/Shizuo Kambayashi)TOKYO (Kyodo) — Sales of new vehicles including minivehicles in Japan marked the largest fall of 47.3 percent in April from a year earlier to 185,673 units in the wake of the devastating March 11 earthquake and tsunami in the country’s northeastern region, industry bodies said Monday.

The sales volume was also the record monthly low, which was smaller than the previous low of 198,693 units marked in January 1968, according to the Japan Automobile Dealers Association and the Japan Mini Vehicles Association.

The rate of decline beat the previous record fall of 40.7 percent in May 1974 as disruptions in supply chains triggered by the disaster forced automakers to significantly curtail output.

Sales of vehicles, excluding minivehicles with engines of up to 660 cc, plunged 51.0 percent to a record low of 108,824 units, falling for the eighth straight month and registering the sharpest percentage fall.

Minivehicle sales dropped 41.1 percent to 76,849 units, also marking the largest percentage fall.

Japan’s Wages Fall, Highlighting Risks to Economic Recovery

May 2 (Bloomberg) — Japan’s wages slid for the first time in 13 months in March, underscoring the risk that slumping consumer spending may undermine the recovery from an earthquake that left more than 25,000 people dead or missing.

Monthly pay including overtime and bonuses dropped 0.4 percent from a year earlier to 274,886 yen ($3,383), the Labor Ministry said today in Tokyo. Overtime work hours fell 2 percent to 10.1 hours, the data showed.

The wage data highlight the economic damage from the March 11 disaster, which caused a record decline in factory output and decreases in retail sales, household spending and consumer confidence. Japan’s parliament passed today a 4 trillion yen ($49 billion) extra budget put together by Prime Minister Naoto Kan to pay for reconstruction in the northeast area.

“The impact of the earthquake on wages will materialize in coming months,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Corporate earnings are worsening, which could prompt companies to start cutting salaries,” and that “will likely weigh on personal consumption.”

The Nikkei 225 Stock Average rose 1.6 percent to close at 10004.20 today after U.S. companies reported better-than- expected earnings and President Barack Obama said al-Qaeda leader Osama bin Laden was killed. The yen weakened 0.3 percent to 81.47 against the dollar at 4:16 p.m. in Tokyo.

Nomura’s Income

Nomura Holdings Inc., Japan’s largest brokerage, said last week its net income fell 35 percent to 11.9 billion yen in the three months ended March 11, as income from investment banking and trading declined.

Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three biggest carmakers, say domestic output plunged in March. Toyota may lose output of 300,000 vehicles in Japan and 100,000 overseas through the end of April due to quake-related shutdowns, Executive Vice President Atsushi Niimi said last month.

Sales of cars, trucks and buses, excluding minicars, fell 51 percent in Japan from a year earlier to a record-low 108,824 vehicles in April, the Japan Automobile Dealers Association said in a statement today.

Japan’s industrial production plunged 15.3 percent in March from February, the largest drop since data began in 1953, government data showed last week. Household spending slid 8.5 percent from a year earlier in March, while consumer confidence fell the most on record, data last month showed.

‘Severe’ Outlook

The Bank of Japan last week cut its growth estimate for the nation for the year ending March 2012 to 0.6 percent from a January prediction of 1.6 percent, with Governor Masaaki Shirakawa saying the economic outlook is “severe.”

Consumer spending may decrease in both the first and second quarters and rebound in the third quarter at the earliest, BNP Paribas’ Kato said. Such outlays make up about 60 percent of Japan’s gross domestic product.

Kan’s extra budget, which the prime minister says will be one of several financing packages for rebuilding, may create around 200,000 jobs and support some 1.5 million workers, the government estimated last week.

The government projected in March that damage from the disaster may reach 25 trillion yen.

Seven & I Holdings Co., the owner of the 7-Eleven convenience-store brand, said last month its full-year profit may decline 22 percent. Aeon Co., which may surpass Seven & I to become the country’s biggest retailer in terms of revenue this fiscal year, said net income may decline 33 percent.

Japan Passes Y4tln Emergency Budget, But Political Standoff Not Over

(Dow Jones) Japan’s parliament passed a Y4 trillion disaster relief budget on Monday. The extra budget, which totals Y4.015 trillion and is the first of a planned series of spending packages to deal with the aftermath of the disaster, does not involve additional government borrowing as it will be financed by funds previously earmarked for other spending. The government will now shift its focus to drafting a broad after-quake reconstruction plan as well as a long-term blueprint to overhaul Japan’s tax and social security systems by the end of June. The government will then compile a second extra budget to fund other quake-related measures, Prime Minister Kan and Finance Minister Yoshihiko Noda have indicated.

Domestic Auto Sales Fall 51% In April

(Dow Jones) Japan’s domestic sales of new cars, trucks and buses dropped 51.0% from a year earlier in April, as supply chain problems after the massive earthquake and tsunami on March 11 reduced supplies of new vehicles to customers. Sales totaled 108,824 vehicles in April. The sales drop in April came after a 37% on-year decline in March. Sales of Toyota Motor Corp. vehicles dropped 68.7% to 35,557 vehicles in April, with those of its luxury brand Lexus down 44.7% at 1,656. Nissan Motor Co. vehicle sales tumbled 37.2% to 17,413 in the month, while Honda Motor Co.’s sales sagged 48.5% to 18,923. Auto sales are the first consumer spending numbers released each month. The figures don’t include sales of mini cars and trucks.

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Japan Weighs Scrapping Company-Tax Cut, Lifting Sales Levies

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More talk on ‘paying for’ the reconstruction.

Fearing they could be the next Greece will ensure they remain in the rut they’ve been in for most of the last two decades.

Global austerity continues to push Europe towards the tipping point of where cutting spending and increasing taxes starts raising deficits though economic weakness/automatic fiscal stabilizers.

China appears to be continuing to ‘tighten’ to fight inflation, even though growth has already slowed considerably.

The US govt seems heck bent on cutting spending even in this fragile recover, and with risks to overseas demand for our exports at risk from global austerity measures.

Crude went up very little with the NATO action in Libya, and seems to have stabilized at current levels of Brent. That means at some point (when delivery issues get sorted out) WTI converges to Brent.

It remains to be seen how much the earthquake in Japan will slow down world gdp in Q2 due to parts shortages.

It’s starting to look to me like the US needs current levels of federal deficit spending just to muddle through without a pickup in private sector credit expansion, which historically means housing and cars. I don’t see any signs of life in housing yet, and cars could soften some for Q2 due to parts issues.

The lack of understanding of monetary operations (along with burning up our food supply for motor fuel) is now driving global unemployment to the point of social unrest.

Another setback can only make things worse.

Japan Weighs Scrapping Company-Tax Cut, Lifting Sales Levies

By Kyoko Shimodoi and Toru Fujioka

March 29 (Bloomberg) — Japan’s ruling party is considering
abandoning a proposed corporate-tax cut and boosting levies on
individuals to help pay for earthquake reconstruction and reduce
the need to step up bond sales.

Vice Finance Minister Fumihiko Igarashi said yesterday the
government may scrap the planned 5 percentage-point reduction in
company tax rates, a step that the head of the nation’s largest
business lobby endorsed. The deputy chairman of the Democratic
Party of Japan’s tax committee, Ikkou Nakatsuka, said separately
in an interview: “We can’t avoid raising taxes as the great
earthquake may worsen an already dangerous fiscal situation.”


Increasing taxes would risk deepening the hit to economic
growth in the aftermath of the nation’s record earthquake and
ensuing tsunami on March 11. Some legislators have instead
advocated that the Bank of Japan buy debt directly from the
government to pay for the reconstruction.

“A tax increase will likely dampen personal consumption
when household sentiment has already cooled,” said Norio
Miyagawa, senior economist at Mizuho Securities Research and
Consulting Co. in Tokyo. He also said that “if the government
totally calls off a corporate tax cut, not temporarily abandons
it, it could accelerate the risk of the hollowing out of Japan”
as manufacturers shift operations abroad.

Toyota, Sony

Company earnings are likely to be impaired by the
catastrophe, which forced firms from Toyota Motor Corp. to Sony
Corp. to suspend factories in the devastated northeast and
elsewhere as supply chain and power disruptions spread. The
Nikkei 225 Stock Average fell 1.6 percent to 9,330.12 at 9:54
a.m. in Tokyo. It has lost about 11 percent since the temblor.


Prime Minister Naoto Kan may avoid a political cost from
the tax measures, as 67.5 percent of the public support higher
levies to fund reconstruction, according to an opinion poll
released by Kyodo News two days ago. A tax increase may help to
push back the possibility of a future fiscal crisis with public
debt already about twice the size of the $5 trillion economy.


The government estimates damage from the disaster, which
left more than 27,000 people dead or missing, at as high as 25
trillion yen ($306 billion).

Sales Tax Increase

Japanese government data released today suggested that the
economy was recovering in February before the quake struck this
month. The unemployment rate unexpectedly fell to 4.6 percent
from January’s 4.9 percent, according to the statistics bureau
in Tokyo. The number of available jobs rose to the highest level
in two years, and retail sales increased last month, the data
showed.


Goldman Sachs Group Inc. today said Japan’s economy will
shrink next quarter and lowered its growth forecast for the year
starting April 1 to 0.7 percent from 1.3 percent.


Finance Minister Yoshihiko Noda said today he believes
taxpayers are willing to help pay for the rebuilding.


To raise about 5 trillion yen a year for the reconstruction,
Nakatsuka has suggested a two-percentage point increase in the
sales tax rate, currently at 5 percent.


It would be the first increase since 1997, when the sales
levy was raised from 3 percent. The economy fell into a
recession after the increase and the then ruling Liberal
Democratic Party lost an election as a result. Mentioning a
possible increase in the tax was one reason Kan’s DPJ lost
control of the upper house in a national ballot last year.

Corporate Tax

Shinichiro Furumoto, a DPJ member and director-general of
the party’s fiscal committee, said a sales tax would be the
desirable option.


“Only the consumption tax imposes the burden equally among
citizens, from young to old and from men to women,” he said in
an interview last week.


To secure more funds, the government may forego the planned
reduction in the corporate tax rate, Igarashi told reporters
yesterday. The levy cut, which was supposed to begin in the year
starting April 1, would have decreased revenue by between 1.4
trillion yen and 2.1 trillion yen, according to calculations by
the Ministry of Finance.


The company tax rate in Tokyo is 40.69 percent, compared
with 28 percent in the U.K. and 25 percent in China, according
to the ministry’s data.


“If this will lead to a speedy reconstruction, personally
it’s fine with me if the tax reduction is scrapped,” Hiromasa
Yonekura, chairman of the business lobby Keidanren, told a news
conference yesterday

Budget Overhaul

The government will need to review its entire budgetary
spending and revenue plans when examining how to fund
reconstruction, Katsuya Okada, the No. 2 official of the DPJ
said yesterday.


Some other lawmakers in both the ruling and opposition
parties are against tax increases, saying such steps would
damage private demand already depressed by the disaster.


“There’s no way that taxes can be increased when there’s
deflation,” Kozo Yamamoto, a member of parliament with the
opposition Liberal Democratic Party, said in an interview last
week.


He instead called for a 20 trillion yen rebuilding program
financed by Bank of Japan debt purchases. A group of ruling-
party lawmakers submitted a similar proposal to Noda this month,
DPJ member Yoichi Kaneko said in a blog post.


The LDP’s leader, Sadakazu Tanigaki, appears to disagree
with Yamamoto’s views, as he said this month that he proposed to
Kan a temporary tax to help fund the relief effort.


Moody’s Investors Service said after the quake that Japan
may eventually reach a fiscal “tipping point” if investors
lose confidence in the soundness of public finances and demand a
risk premium on government bonds.


Japanese Economic and Fiscal Policy Minister Kaoru Yosano
said today the country is close to its limit in terms of the
amount of bonds it can sell.

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U.K. Retail Sales Advance at Fastest Pace in 10 Months, BRC Says

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The deficit is still plenty large enough for a decent expansion, so the year end weather setbacks could be reversed and then some before sufficient austerity sets in and works to reverse it all.

Hard to figure the timing for the cross currents.

Also, opening the borders to wealthy foreigners, as they recently announced they were doing, is a clever move to firm the currency and support the economy and asset prices.

UK Headlines

U.K. Retail Sales Advance at Fastest Pace in 10 Months, BRC Says
U.K. Housing-Price Gauge Increased in January on Supply Shortage
Osborne Says U.K. Bank Levy Increase to Raise 800 Million Pounds

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Japan Consumption Falls In Dec As Deflation Persists

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And now the Prime Minister has vowed to tighten fiscal policy.

The only open avenue (the way they see the world) is buying fx.

And note that they’ve already started buying some dollars and have been welcomed by the euro zone to buy their national govt debt.

Consumption Falls In Dec As Deflation Persists

TOKYO (Dow Jones)–Japanese consumers remained downbeat in December, as deflation persisted and the employment situation remained mixed, data released by the government Friday showed.

 
Taken together, the figures are the latest sign that the economy will have to rely largely on exports to fuel growth as conditions remain dreary at home.

 
All household spending fell 3.3% from a year earlier in December, the Ministry of Internal Affairs and Communications said. The drop was considerably worse than the median forecast for a 0.6% fall tipped by economists surveyed by Dow Jones Newswires and the Nikkei. It was also sharper than a 0.4% fall in November.

 
In another sign that consumers remained hesitant to spend, retail sales fell 2.0% in December from a year earlier, data from the Ministry of Economy, Trade and Industry showed. The decline was mostly due to a sharp drop in auto sales, which fell by 24.1% in the month following the end of government purchasing incentives. Sales at large-scale retailers fell 1.8% from a year earlier, after adjustment for the change in the number of stores.

 
Highlighting the continued deflation, Japan’s core consumer price index fell 0.4% from a year earlier in December, Ministry of Internal Affairs and Communications data showed. While the result was slightly better than the 0.5% expected by economists, it marked the 22nd straight monthly decline, underscoring how entrenched the country’s deflation problem remains. Core prices, which exclude volatile prices of items such as fresh food, fell by 0.5% in November.

 
The slight easing in the price falls, moreover, stems from rising energy prices, which may only hurt individual spending down the line, economists said.

 
Higher energy and natural resource prices, if they are reflected in the price of consumer goods, “may lead to people cut back on consumption when circumstances surrounding households are already severe,” said Atsushi Matsumoto, an economist at Mizuho Research Institute.

 
Even with the upward pressure on prices, Matsumoto said it will be difficult for Japan to get out of deflation in the next fiscal year beginning in April, despite Prime Minister Naoto Kan’s government setting that timeframe as a goal.

 
Meanwhile, despite a fall in Japan’s jobless rate to 4.9% in December from 5.1% in the previous month, the closely watched jobs-to-applicants ratio was unchanged at 0.57. That number, which means there are only 57 jobs for every 100 job applicants, shows that firms have yet to ramp up hiring despite improvement in earnings.

 
“The jobless rate did show some improvement, but we need to remain very cautious as it’s still close to 5%,” a Ministry of Internal Affairs and Communications official briefing reporters said.

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State Revenues Rising

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Yes, revenues are going up, but my guess is actual state spending is not.

In other words, the rate of state ‘borrowing to spend’ including capital budgets has likely slowed?

That’s a net drop in aggregate demand- higher taxes without that much higher spending.

Also, spending federal funds is already figured in aggregate demand calculations as part of federal deficit spending.

And states are still struggling with the likes of pension contributions which decrease aggregate demand as well.

So looks to me states remain a net negative for growth next year, though as credits things are probably a lot less bleak than recent headlines have suggested.

As previously discussed, federal deficit spending floats all boats, etc.

THE ECONOMY
States Begin Slow Recovery as Revenues Increase
 

STATE BUDGETS IMPROVE
State and local budgets are in far better shape than a year ago as receipts from sales tax and corporate taxes pick up, but pressures remain from pension costs and Medicaid commitments.
By JAMES C. COOPER, The Fiscal Times
 

• Total state and local receipts, excluding federal grants, are up $120 billion..
• 42 states show increased tax revenues compared to a year ago.
• There were 72 municipal bond defaults in 2010, down 65 percent from 2009.
 

The poor condition of state and local budgets is on everyone’s radar, but just how much should we worry? Wall Street analyst Meredith Whitney recently declared on CBS’s 60 Minutes that, next to housing, the situation was the single biggest threat to the U.S. economy. That may have been true a year ago, when the recession had ravaged tax receipts and a lasting economic recovery was still in doubt. However, recent trends in both revenues and the economy look much more encouraging, and the risk of major short-term economic damage appears to be waning, not waxing.
 
Budget problems are not going to disappear anytime soon as states face the burden of huge unfunded pension obligations and rising Medicaid costs, among other expenses. California, for one, has a $28 billion deficit this year. The state received $630 million of stimulus funds for job creation, but according to the L.A. Times, only 25% of those funds have been spent due to bureaucratic red tape.
But governments are making significant progress, as many start to feel the updraft from the economic recovery. Tax receipts of state and local governments rose 5.1 percent in the third quarter from the same quarter a year ago, based on the latest accounting from the Bureau of Economic Analysis. Personal income taxes have yet to show much progress amid slow job growth, but sales tax receipts picked up notably last quarter, reflecting improving retail sales. The lion’s share of the growth in revenues has come from corporate taxes, which have surged 87 percent over the past year, as a result of this year’s surprisingly strong gain in corporate profits.
 
One often-cited problem for many states in the coming year is the expected loss of some $40 billion in federal money provided by the 2009 Recovery Act. However, many governments stand ready to make up the difference. State and local revenues from individual and corporate income taxes and sales taxes in the third quarter were up by $54 billion from a year ago, a growth rate that is likely to pick up in 2011, as economic growth and labor markets strengthen. In fact, since hitting bottom in the second quarter of 2009, total receipts from all sources, excluding federal grants-in-aid, have increased by $120 billion and have recovered all of their recession losses.
 

Analysts at the Rockefeller Institute noted a “significant improvement” in the state revenue picture and that the trend in tax collections for 2011 is “positive.” Based on their preliminary tracking for the third quarter, 42 states show an increase in revenues compared to a year earlier. However, individual stress levels vary greatly. Overall, the Rockefeller analysts say budget pressures remain, and additional revenue growth will be needed at a time when spending commitments continue to grow.
 
More revenue may well be the key surprise in the coming year. Revenue projections for the 2011 fiscal year, which began for most states on July 1, were based partly on economic forecasts at that time. Six months ago, the economy was slowing down as the European debt crisis sparked fears of a double-dip recession, and economists widely projected growth only in the 2-2.5 percent range for 2011. Now, given the rebound in consumer spending in the second half of 2010 and significant new stimulus in the recent tax deal, which offers a big boost to household incomes, a broad brush of economists have raised their 2011 growth projections into the 3.5-4 percent range. If realized, that pace and its implied boost to payrolls would greatly lift receipts from income, profits, and sales taxes, which make up 46 percent of state revenues, compared to 34 percent from federal grants.
 
State budgets may actually fair better than local finances next year. That reflects the different sources of revenues between states and cities. Property taxes account for 35 percent of local government receipts, while grants-in-aid from their respective state governments make up another 40 percent. The problem: Property taxes fluctuate with assessments, which are bound to go nowhere in the coming year, and many states under continued stress will find it difficult to funnel money to municipalities. Clearly, the better state coffers do in 2011, the better the condition of local budgets.
 
All this raises fears of a rash of defaults in the $2.8-trillion municipal bond market, as the 60-minutes report suggested. States and cities under the heaviest fiscal stress are already paying a significant premium on new borrowing, and the loss of Build America Bonds at the end of 2010, part of the 2009 Recovery Act, could lift borrowing costs further.
 
However, muni-bond defaults have actually fallen in 2010, to 72 totaling $2.5 billion, down from 204 in 2009, according to data reported by Bloomberg. Chris Hoene, director of research and innovation at the National League of Cities, notes that interest expense is only about 5 percent of state and local expenditures, and nearly all debt is long-term with predictable payments. Plus, almost all states and cities have balanced-budget requirements with provisions to address debt issues before default can occur.
 
Unfortunately, the draconian cuts already seen in state and local services and jobs have been the chief reason defaults have been held in check. For 2011, however, fewer cutbacks and a smaller hit to the overall economy seem likely. Economists at Barclays Capital project further declines in state and local payrolls of about 150,000 by the end of 2011. Every job is important, but in the big picture, that’s a drop in the bucket. Moody’s Analytics estimates that, if the economy grows nearly 4 percent next year, it will create about 2.6 million jobs, each one adding new revenues to state and local coffers. The same Barclays analysis projects that state and local governments will subtract only about 0.1 percentage point from growth in GDP in 2011.
 
State and local budgets are by no means out of the woods. Pressure will most likely continue into 2012, and longer-term problems loom with rising pension costs and Medicaid commitments. For now, at least, governments are making progress, and a stronger economy will add to the positive trend.

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