There’s do much contradictory comment at the moment that no indicators seem reliable. From one paper’s Business News on 3 separate pages I give extracts to show what I mean!
The first from Edmund Conway exudes optimism from every paragraph except the last! Few will spot that this is based on opinions from one month given by people trying to ‘talk-up’ the market. As Damian Reece in another column says “while the UK numbers show the onset of another coughing fit as our manufacturing sector struggles for breath. One month's figures are obviously of limited value.”
The second deals with UK manufacturing.
The final article comes from Ambrose Evans-Pritchard and relates to Japan which others have claimed to be coming out of recession.
If you’re not confused with this lot, you ought to be. The only sane conclusion is that nobody has a clue - economists anf politicians alike. And just to cheer you up the same paper’s Tom Stevenson has a piece softening us all up for a stock market collapse this month or next!
Christina
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2.9.09
1. Global economic slump 'may be over' as industry booms again [Don’t the people writing the headlines ever read the articles in question? -cs]
Hopes that the world's new and the old economic superpowers are now striding out of recession have been underlined by news that manufacturing output in both China and the United States is expanding.
By Edmund Conway, Economics Editor
The US industrial sector is now growing for the first time in a year and a half, according to an authoritative survey of producers, while Chinese factory activity surged to a 16-month high and the manufacturing outlook in France and Germany improved. [No hard facts there anywhere! -cs]
However, the recovery is not being universally shared, with the UK joining Italy and Spain in seeing deterioration in its purchasing managers’ index (PMI) scores. And despite the good news, the Dow Jones dropped 185.68 points to 9310.60 amid worries that losses will continue to mount on banks’ balance sheets.
The Institute of Supply Management said its index of US factory output rose into positive territory, notching up its biggest two-month jump since 1983. The index, in which anything above 50 points represents that the sector is expanding, rose from 48.9 to 52.9 in August. The figures will be taken as evidence that the range of measures taken by the White House to stimulate the economy, including a “cash-for-clunkers” scheme designed to encourage families to buy new cars, is working. Indeed, US car sales increased sharply in August.
The news pushed the dollar higher against the yen and the euro as speculation grew that the US would be able to get back to strong growth sooner than many of its peers.
Analogous surveys in Asia were similarly strong. [Oh no they’re not - see Japan below! -cs] The Chinese manufacturing purchasing managers' index produced by Markit rose from 52.8 points to 55.1 in August, while an official version also rose to 54 points. It coincided with news that the Communist Party is considering a “Chinese Marshall Plan” to create demand for its products by lending money to countries in Africa, South America and Asia.
In Taiwan, the PMI rose for the sixth successive month from 53.8 in July to 55, while in South Korea the index stood at 53.6 – the second highest reading in 19 months, though down from 54 in July.
In Europe, the French and German PMIs both improved, with France’s index up from 48.1 to 50.8, while Germany’s was up from 45.7 in July to 49.2 last month .
The data is of particular importance since many economists consider it to be a useful indication for how the wider economy is performing. Indeed, Goldman Sachs economists have declared that a combination of the UK PMIs for the main sectors is usually a better proxy for determining gross eventual domestic product growth in any given quarter than the official provisional estimates.
However, Graham Turner of GFC Economics cautioned reading too much into the August improvement.
He said: “The boost from one-off initiatives – cash-for-clunkers – is distorting the underlying picture. One could conclude that the Obama plan is at least working in the short run and, therefore, should give the economy some breathing space to work through the excess supply of properties. Equally, one could also argue these initiatives deflect from more durable policies that will prevent a relapse in 2010.”
2. UK manufacturing sector relapse damages recovery hopes
British manufacturing unexpectedly relapsed into contraction in August, damaging hopes that the sector was on the road to a sustainable recovery.
By Angela Monaghan, Economics Reporter
The well-respected manufacturing Purchasing Managers' Index (PMI) dropped back below the 50 mark - which separates contraction from expansion - to 49.7 from 50.2 in July. The July number was also revised down from 50.8.
It was the first time in six months that the index, which combines output and orders, weakened, and it surprised economists who were expecting a rise to 51.5.
Market confidence was eroded after the survey was published, with the FTSE 100 closing down 1.8pc at 4819.7, after ending Friday up 0.8pc at a near 11-month high.
There was some positive news from the PMI, with the output index rising to 55.1 - its highest level since December 2007. New exports orders also fared better at 49.9 from 48.8, showing that exports were on the verge of growing in August, possibly boosted by the weaker pound.
New orders remained in positive territory for a second month but the pace of growth slowed to 52.4 from 54.8. It raised fears that the economy is in store for only fragile recovery at best and a double dip recession at worst, where the economy falls back into contraction after a brief period of expansion.
"The future picture for the UK manufacturing sector is still uncertain, and concerns will remain that the improvements seen in recent months may have been temporary rather than a sustainable recovery," said David Noble, chief executive at the Chartered Institute of Purchasing & Supply which co-produces the report with Markit,
He added: "Though August saw the trend in output build on the momentum gained at mid-year, the moderation in the rate of new order growth is worrisome."
The August PMI was also dragged down by substantial job losses, with the employment measure registering a contraction for the 17th month in a row. It was 43.4 in August, up from 43 in July.
"The recovery is likely to continue, but may become more muted later in the year once the initial rebound and monetary and fiscal stimuli have run their course," said Rob Dobson, senior economist at Markit.
Economists said that despite the mixed news it was still likely that the manufacturing sector would begin to expand again in the third quarter, even if recovery proved to be bumpy along with the way with volatile PMI readings.
"If the survey results are backed up by similar progress in the official data, the manufacturing sector should see a return to positive growth in the third quarter," said Hetal Mehta, economic advisor to the Ernst & Young ITEM Club.
3. Bond vigilantes fret over Japan
Japans's tax revenues have collapsed by 27pc over the last year, leaving it unclear how the incoming Democrats can pay for their blitz on welfare spending without flooding the debt markets.
By Ambrose Evans-Pritchard, International Business Editor
The International Monetary Fund already expects Japan's budget deficit to top 10pc of GDP this year and next. Gross public debt will reach 215pc of GDP in 2009, the highest in the world. "Japan faces a very difficult fiscal situation," said the Fund in its latest country report.
Democrat leader Yukio Hatoyama, who won a landslide victory over the weekend, has pledged that there would be no increase in debt to fund his $180bn boost for child allowances and social policy by 2013, but his advisors are already back-tracking as they examine the dire tax figures. [For this kind of reason Cameron here is being wary of being too precise about what’s to happen. Nobody is being allowed to see the books - on Brown’s orders -cs]
While Japan pulled out of recession in the second quarter, it has barely begun to make up for the 11.7pc contraction of its economy over the preceding year. Industrial production was still down 23pc in July. Exports were down 39pc to the US.
The Great Recession has tipped state finances into a deep crisis. Corporate tax revenues have turned negative as refunds exceed payments from companies facing a collapse in profits.
Japan's finance ministry has been able to count on a huge pool of domestic savings and a captive bond market to fund Keynesian spending projects over the years, but policy-makers fear that the debt market may reach saturation.
Yields on ten year bonds are currently 1.3pc. "Can these benign conditions be expected to continue in the face of even-larger increases in public debt?" said the IMF.
If yields rise to the OECD level of 3pc to 4pc they would cause Japan's debt to spiral out of control. This is no longer a remote possibility. High Frequency Economics says Mr Hatoyama has won the privilege to preside over "the biggest financial meltdown in history."
Japan's $1.5 trillion state pension fund said in April that it would start selling its bonds to cover a $40bn shortfall on its books. Private citizens face the same need. The savings rate has fallen from 14pc to 2pc since 1990. "The IMF said this could put "significant pressure" on bond markets
Japan has become a laboratory for the world's aging crisis. The work-force began contracting in 2005. The country must now rely on diminishing tax revenues to cover a rising burden of pensioners.
Albert Edwards, a Japan veteran at Societe General, said deflation would trump concerns about excess borrowing. "Inflation has crashed back into negative territory, falling 2.2pc in July year-on-year. This will happen to the West eventually," he said.
Wages have been sliding persistently, though disguised by temporary contracts and cuts in bonuses. Cash earnings were down 7.1pc in June year-on-year. While asset prices touched bottom earlier this decade, they have never fully recovered from their peak in 1990. Tokyo land prices are still down by 75pc.
Michael Taylor from Lombard Street Research said Japan made a strategic error during its Lost Decade by waiting too long to pull the monetary levers. "They failed to boost money supply the way the Fed and the Bank of England are trying to do through quantitative easing. Their fiscal packages led to a massive deterioration in public finances."
"IMF studies show that as public debt rises above 60pc of GDP fiscal stimulus loses it effect. People anticipate the consequences: higher taxes, and eventually higher interest rates. The bond vigilantes will always get you in the end," he said. [Since Britain is well above the 60% threshh
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