Australian downturn

There don't seem to be any recent PMI figures for New Zealand - is that because we don't have much in the way of manufacture any more. We rely on the Rugby World Cup, earthquakes and (now) "the Hobbit'

Australia Manufacturing Contracts Further In November

NASDAQ,

3 December, 2012

SYDNEY--A key gauge of manufacturing activity in Australia fell in November, the latest sign a mining slowdown is weighing on the country's resources-dominated economy.

The Australian Industry Group Performance of Manufacturing Index fell 1.6 points in November to 43.6 from a month earlier. A PMI reading above 50 indicates an expansion in manufacturing activity from the previous month, whereas a reading below indicates contraction.

The weak reading comes a day ahead of the Reserve Bank of Australia's final policy setting meeting of the year, when the central bank is widely expected to cut its benchmark lending rate by a quarter of a percentage point to 3.0%. The RBA has so far lowered rates by 1.50 percentage points since November last year.

The contraction in manufacturing activity in November was widespread, with steep declines in the petroleum, coal products, construction materials and metals sectors. Only the food and beverages sector expanded during the month.

"The key concerns for manufacturers remain the high dollar, rising energy costs and weak demand in export and local markets," said Innes Willox, chief executive of the Australian Industry Group.

The Australian dollar has continued to trade above parity with the U.S. greenback through most of the year despite a sharp fall in commodity prices. Trading Monday at US$1.0428, the currency is blamed by some policy makers for eroding the competitiveness of Australian exports and manufacturers.

"These factors are exacerbated by the ongoing slump in the residential and commercial construction sectors and have not been offset by the reduction in interest rates to date," Mr. Willox said.

Increased pressure to cut peak electricity use

CabooltureNews,

30 November, 2012

THE growing pressure on Australians to cut their peak power use has been given a boost, with the Australian Energy Market Commission recommending consumers change their electricity usage.

After an 18-month investigation into the way the national electricity market operates and recommending changes, the AEMC released its final Power of Choice review report on Friday.

The commission recommended major changes to the National Electricity Rules and government programs which give consumers information about prices, and what options people have to change their power use.

It could also lead to higher prices during times of peak demand, such as during summer, in line with recent recommendations in the Federal Government's energy white paper.

The report will now go to the Standing Council of Energy and Resources, for state and federal ministers to decide what action will be taken

The European economy

European Industrial Production Plunges 2.3 Percent; Greece GDP Plunges 7.2 Percent

Mish's Global Economic Analysis,

14 November, 2012

Inquiring minds investigating the collapse in Europe note Euro-Zone Industrial Production Declines Steeply 

 Industrial production in the 17 countries that use the euro fell sharply in September as weak output across both the core and peripheral economies added to expectations for a poor third quarter gross domestic product print Thursday.

Data from the European Union's statistical agency Eurostat showed industrial production fell 2.5% on the month in September, That was the largest fall since January 2009 and compares with August's 0.9% increase. On the year, output dropped 2.3% after a 1.3% decline in August.

The data were weaker than expected as economists surveyed by Dow Jones Newswires last week had expected a 2.0% monthly fall and a 2.1% decline in annual terms.

Energy output fell 1.8% in September compared with August, the biggest fall since an 8.4% drop in March of this year, while a 2.8% month-on-month decline in production of non-durable consumer goods was the steepest since January 2000.

And, Eurostat said that a drop in car production across France and Germany saw both countries post monthly output falls of 2.7% and 2.1%, respectively. The fall in French output was the steepest since January 2009, while the drop in German production was the biggest since November last year.

Industrial production in Portugal fell 12.0% on the month in September, the biggest fall since records began in 2000 and was due primarily to strike action that month. And, Ireland's 12.6% monthly drop in output was mainly driven by a drop in activity in the pharmaceutical sector, Eurostat said.

Greece GDP Plunges 7.2 Percent

Reuters reports Greece sinks deeper into depression in third quarter 

 Greece's economic slump deepened in the third quarter, with output shrinking 7.2 percent on an annual basis as the debt-laden country heads into its sixth year of depression and struggles to meet its bailout targets.

The contraction was deeper than the second quarter's 6.3 percent drop and follows the passage of a tough 2013 budget by Prime Minister Antonis Samaras's government that is expected to continue to smother growth for most of next year.

Since 2009, the Mediterranean state's economic decline - which Samaras has dubbed Greece's "Great Depression" - has wiped a fifth off economic output and sent unemployment to a record high, putting one in four Greeks out of work.

The reading could point to an even grimmer outlook, analysts said, because it was offset by better-than-expected returns from the country's vital tourism sector, which accounts for a fifth of Greece's 215 billion euro economy.

Spain is also in recession, and fellow austerity-hit Portugal's contraction deepened in the third quarter, with export growth slowing and domestic demand hit by an austerity programme imposed under the country's international bailout.

Portugal's economy shrank 3.4 percent year on year, National Statistics Institute INE said on Wednesday, accelerating from the previous quarter's revised 3.2 percent drop.

Little to add other than things will get much worse. Expect France and Germany to take a big economic dive as well.

Looking Ahead, Spain Worse

 

 

 

Than Greece; Only One

 

 

 

Realistic Solution

 

 

 

Mish's Global Economic Analysis,

14 November, 2012

Both Greece and Spain are in the midst of huge depressions. The unemployment rate in Spain is 25.8%, in Greece it's 24.4%. Youth unemployment is over 50% in both countries. 

Greece is in its 6th year of depression and GDP is down another 7.2%. Expect Spain to follow. 

Matthew Dalton, writing for the Wall Street Journal explains Where Spain Is Worse Than Greece

 By most measures, Greece’s economy is in worse shape than Spain’s. Greece has been largely shut off from financial markets for more than two years; yields on its bonds are still sky high. Gross domestic product has fallen nearly 20% over the previous three years. Spain can still borrow from private investors, and its GDP has fallen around 5% during the crisis.

But if you take forecasts from the European Commission seriously, Greece enjoys one formidable advantage over Spain: Its economy is running well below capacity, while the Spanish economy, despite an unemployment rate around 25%, is operating relatively close to full steam.

Why is that an advantage? According to the commission, it means that the Greek unemployment rate should fall sharply if the economy starts to recover again, without causing inflation. Spain faces a much more difficult situation. If the structure of its labor market doesn’t change, the commission’s analysis suggests that a nascent economic recovery in Spain could be hampered by labor shortages that would spark wage inflation.

Greece faces similar problems, but they are less serious, according to the commission’s analysis. Yes, the “government-borrows-money-and funds-consumption” model of growth won’t be available to Greece anymore. But it didn’t endure the same private-sector credit bubble that hit Spain during the previous decade.

The differences between Greece and Spain can be seen in several economic metrics published by the commission. There is the output gap, or the difference between actual GDP and potential GDP (as a percentage of potential GDP). The figure is a whopping 13% for Greece but just 4.6% for Spain.

Then take a look at the commission’s estimates of the so-called non-accelerating wage rate of unemployment (NAWRU) in Greece and Spain. This is the unemployment rate below which the commission believes the inflation rate starts to rise. It’s also known as the “natural rate” of unemployment. The natural unemployment rate for Greece is around 14.8%; it is 21.5% for Spain. This despite unemployment rates around 25% in both countries.

Spain’s structural budget deficit is somewhat smaller than its actual deficit (6.3% of GDP vs. 8%), because of the country’s weak economy. But most of the deficit is still “structural,” according to the commission, a disturbing thought in a country where 25% of the workforce is unemployed.

And because the euro zone’s new “Fiscal Pact” requires countries to bring their structural deficits under 0.5% of GDP, Spain still has a lot of government austerity to endure before the cutting is done.

Only One Realistic Solution

 

I do not subscribe to the concept of a "natural rate of unemployment". Nonetheless, if even half of what Dalton writes is true, Spain is in a world of hurt.

I do think Dalton hits the target on structural issues and that puts an unsolvable problem on the Spanish government that is struggling mightily to not subject itself to Troika-imposed austerity measures in return for a bailout.

Eventually Spain, like Greece will see the light. The only way out of this mess is to leave the euro and simultaneously undertake structural reforms.

Mores signs of global depression

Global Manufacturing Contracts 5th Consecutive Month

Mish's Global Economic Analysis,

2 November, 2012

Markit reports Global manufacturing contracts for fifth consecutive month

 The downturn in the global manufacturing sector moderated in October. The JPMorgan Global Manufacturing PMI™ – a composite index produced by JPMorgan and Markit in
association with ISM and IFPSM – rose for the second month running to reach 49.2, its highest reading during the current five-month period of contraction.

The sector continued to report declining volumes of production and new orders, although rates of contraction were slower than in the previous month.

Signs of excess capacity were present in the global manufacturing sector during October. This was highlighted by a further marked reduction in backlogs of work, which
fell for the seventeenth successive month and at the joint-fastest rate during that period.

Global PMI



Manufacturing is leading this global decline. Retail and services will follow.

I have very little to add here other than a note that this certainly was not unexpected in this corner.

Further deterioration in Europe-

Eurozone Downturn Deepens, PMI at 40-Month Low; Manufacturing Weakness in Germany; Considerable Service and Manufacturing Contraction in France

Mish's Global Economic Analysis,

24 October, 2012

This morning Markit released Eurozone, France, and Germany preliminary PMI reports. All show further deterioration.
Germany
Markit Flash Germany PMI® shows Manufacturing weakness behind moderate drop in German private sector output during October. 

 Summary

At 48.1 in October, the seasonally adjusted Markit Flash Germany Composite Output Index was down from 49.2 during September and signalled a further moderate reduction in overall private sector business activity. The index has now posted below the neutral 50.0 value for six consecutive months. With the latest reading close to the average for Q3 2012 (47.9), the latest survey suggests an ongoing lack of momentum across the German private sector economy.

Lower levels of output were recorded in both the manufacturing and service sectors during October, with the former indicating the sharper decline over the month. The slight drop in services activity followed signs of stabilisation during September, while the sub-50 index reading for manufacturing production was the seventh in as many months.

Manufacturers pointed to a sharp and accelerated decrease in new orders intakes during October, thereby extending the current period of decline to 16 months. Reports from survey respondents overwhelmingly cited weakness in export markets, especially southern Europe. A number of firms also mentioned subdued demand from the automobiles sector. Some panel members pointed to signs of a slowdown in Asia, especially for investment goods. Overall levels of new work from abroad in the manufacturing sector dropped at the second-fastest rate since April 2009 (only exceeded by the fall this August).
Comment

Commenting on the Markit Flash Germany PMI® survey data, Tim Moore, Senior Economist at Markit said:

“Germany’s private sector suffered a disappointing lack of momentum in October, reversing the signs of a step in the right direction during the previous month. The ‘flash’ output index fell back from September’s four-month high largely in response to a sharper drop in manufacturing production.

France 
Markit Flash France PMI® shows further marked contraction of French private sector output at start of Q4. 

 Summary

The performance of the French private sector economy remained weak in October. The latest Flash PMI® data signalled only a slight easing in the rate of decline of output from September’s three-and-a-half year record. The Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, registered 44.8, showing only a small rise from the previous figure of 43.2.

Although moderating since the previous month, rates of contraction remained considerable for both services and manufacturing output.

Panellists generally attributed lower activity levels to a further drop in incoming new business. The index measuring overall new work was only marginally above September’s 41-month low, and remained indicative of a steep pace of decline. Anecdotal evidence pointed to weak demand conditions amid a difficult economic climate. There were reports that clients, especially some firms in the autos sector, had postponed orders and reined in investment due to a lack of confidence in the outlook. Manufacturers again recorded a particularly steep drop in new work, primarily reflective of domestic weakness but also affected by the fastest fall in export sales since May 2009.

The rate of decline in employment in the French private sector remained marked in October, holding steady from September’s 33-month record. Job shedding was broad-based across the manufacturing and service sectors.

Eurozone Downturn Deepens, PMI at 40-Month Low
Markit Flash Eurozone PMI® shows the Eurozone downturn deepens at start of fourth quarter as PMI hits 40-month low. 

 Key Points

• Flash Eurozone PMI Composite Output Index at 45.8 (46.1 in September). 40-month low.

• Flash Eurozone Services PMI Activity Index at 46.2 (46.1 in September). Two-month high.

• Flash Eurozone Manufacturing PMI at 45.3 (46.1 in September). Two-month low.

• Flash Eurozone Manufacturing PMI Output Index at 44.8 (45.9 in September). Two-month low.

Summary

The Markit Eurozone PMI® Composite Output Index fell for a third successive month, down from 46.1 in September to 45.8 in October, according to the preliminary ‘flash’ reading based on around 85% of usual monthly replies. Output has fallen continually since September of last year with the exception of a marginal increase in January.

Output continued to fall in response to a further marked contraction in new orders. The rate of decline in new business eased slightly since September, which had seen the largest drop since June 2009.

PMI vs. GDP



Comments

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:

"The Eurozone has slid further into decline at the start of the fourth quarter. The survey is running at a level which is historically consistent with the region’s economy contracting at a quarterly rate of over 0.5%. Official data have shown surprising resilience over the summer compared to the survey data, but the underlying business climate has clearly deteriorated markedly in recent months. While GDP may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter."

"The financial markets may have cheered the positive developments from policymakers in seeking to resolve the region’s debt crisis, notably the promise of bond market intervention by the ECB, but business appears to have been less impressed. Sentiment about prospects for the year ahead are now the gloomiest since early-2009, when the post-Lehman Brothers crisis was in full swing."

"In addition to worries about the health of domestic markets, companies are also seeing demand weaken further afield, notably in Asia and, to a lesser extent, the US. Worries about the outlook have translated into further job losses, suggesting companies are moving increasingly into cost-cutting mode. Even Germany is not immune, with October seeing the first back-to-back monthly fall in employment since early-2010."

Agreement with Markit

For a change, I am in 100% agreement with Chris Williamson. European GDP has been resilient but do not expect it to las

France

French Economy Implodes

Mish's Global Economic Analysis,

3 October, 2012

As expected, at least in this corner, the French economy has started to implode. Service sector business activity is dropping at fastest rate since October 2011.

More importantly, the Markit Composite PMI sports the steepest rate of contraction since March 2009 with job losses accelerating at the fastest pace in 33 months and output plunging at the fastest rate in 42 months.

 Key points:

Final Markit France Services Activity Index at 45.0 (49.2 in August), 11-month low.
Final Markit France Composite Output Index at 43.2 (48.0 in August), 42-month low.

Summary:

French service providers reported a steeper decrease in business activity during September. The latest fall in activity reflected a considerable drop in incoming new work. Companies adjusted staffing levels down accordingly, leading to an accelerated drop in employment. Input prices rose at a sharper rate but output charge discounting gathered pace, highlighting a deepening squeeze on companies’ margins. Future expectations meanwhile dipped into negative territory for the first time since February 2009.

The seasonally adjusted final Markit France Services Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies compared with one month ago – posted 45.0 in September, down from 49.2 in August. The latest reading pointed to a marked rate of contraction in activity and the fifth decline in the past six months.

The seasonally adjusted final Markit France Composite Output Index – which measures the combined output of the manufacturing and service sectors – registered 43.2 in September, down from 48.0 in August. The latest reading was indicative of a substantial decline in activity and the steepest rate of contraction since March 2009.

Service sector activity declined in response to a further fall in new business during September. The rate of contraction in new work accelerated to the fastest in five months, with anecdotal evidence pointing to lacklustre demand conditions and clients delaying decisions on projects. Combined with a steeper decline in new orders in the manufacturing sector, overall new business across the French private sector fell at the steepest rate for 41 months.

Reduced workloads prompted French service providers to make further cutbacks to employment during September. The rate of job shedding accelerated to the sharpest for 33 months, with panellists indicating that staffing levels were lowered in response to declining activity and as part of cost-cutting efforts. Composite data signalled the sharpest reduction in employment since December 2009.

Right On Time

If that does not accurately describe implosion, what does? Looking for who or what to blame? Look no further than inane work rules and regulations made worse by the socialist government of president François Hollande.

On June 16, in "France Has At Most Three Months Before Markets Make Their Mark" I wrote ... 

 If socialists take control of both houses in French parliament as expected, president François Hollande would have free rein to carry out his stated policies such as hire more public workers, raise taxes on the rich, and Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

Well, three months have passed and the French economy is clearly imploding and Hollande has not even fully followed up on his economically insane promise regarding layoffs, but he has pressured companies to not do so, and he has also massively raised taxes (a splendidly stupid thing to do in recession).

You reap what you sow, and the implosion of France is now underway. Odds of France making its budget projections are in my estimation close to zero, but time will tell.

The Economic Black Hole of Europe

18 Indications That Europe Has Become An Economic Black Hole Which Is Going To Suck The Life Out Of The Global Economy

Economic Collapse Blog,

5 September, 2012

Summer vacation is over and things are about to get very interesting in Europe.  Most Americans don't realize this, but much of Europe shuts down for the entire month of August.  I wish we had something similar in the United States.  But now millions of Europeans are returning from their extended family vacations and the fun is about to begin.  During August economic conditions continued to degenerate in Europe, but I figured that it wouldn't be until after August that the European debt crisis would take center stage once again.  And as I wrote about last week, if there is going to be a financial panic, it typically happens in the fall.

The stock market has seen quite a nice rally over the summer, and many investors are nervous that we could see a significant "correction" very soon.  The month of September has been the absolute worst month for stock performance over the past 50 years, and it has also been the absolute worst month for stock performance over the past 100 years as well.  Of course that does not guarantee that anything is going to happen this year.  But things in Europe continue to get worse.  Unemployment rates are spiking, manufacturing activity is slowing down, housing prices are crashing and major financial institutions are failing.  What is happening in Europe right now appears to be an even worse version of what happened to the United States back in 2008.

But most Americans aren't too concerned about what is happening in Europe.
In fact, most Americans don't believe that a European financial collapse would be much of a problem for us.

Well, just remember what happened back in 2008. When the U.S. financial system started coming apart at the seams it sparked a devastating worldwide recession which was felt in every corner of the globe.

If the European financial system implodes, the consequences could be even worse.

Why?

Europe has a larger population than the United States does.

Europe has a larger economy than the United States does.

Europe has a much, much larger banking system than the United States does.
If Europe experiences a financial collapse, the entire globe will feel the pain.

And considering how weak the U.S. economy already is, it would not take much to push us over the edge.

What is going on in Europe right now is a very, very big deal and people need to pay attention.

The following are 18 indications that Europe has become an economic black hole which is going to suck the life out of the global economy....

#1 The unemployment rate in France is up to 10 percent, and the French media is buzzing about the fact that the number of unemployed French workers has now hit the 3 million mark.

#2 The French government has just announced the nationalization of its second largest mortgage lender.  Additional bailouts are likely on the way.

#3 French automaker PSA Peugeot Citroen has announced that it will be cutting more than 10,000 jobs.  But of course major layoff announcements like this are coming out of Europe almost every day now.

#4 Home prices in France are falling rapidly and the recent election of a socialist president has created a bit of a panic in the French housing market....

British people with homes in France were today warned that the property market is in 'free fall'.

A combination of factors including the election of a tax-and-spend Socialist government means that prices are tumbling.

It means an end to the boom years, when thousands of Britons poured money into rental or retirement investments across the Channel.

#5 A slow-motion bank run is happening in Spain.  The amount of money being pulled out of the Spanish banking system is absolutely unprecedented.  The following is from a recent Zero Hedge article....

The central bank of Spain just released the net capital outflow numbers and they are disastrous. During the month of June alone $70.90 billion left the Spanish banks and in July it was worse at $92.88 billion which is 4.7% of total bank deposits in Spain. For the first seven months of the year the outflow adds up to $368.80 billion or 17.7% of the total bank deposits of Spain and the trajectory of the outflow is increasing dramatically. Reality is reality and Spain is experiencing a full-fledged run on its banks whether anyone in Europe wants to admit it or not.

If this pace keeps up, more than 600 billion dollars will be pulled out of Spanish banks by the end of the year.

Keep in mind that the GDP of Spain for all of 2011 was just 1.49 trillion dollars.
So by the end of this year we could see the equivalent of more than 40 percent of Spanish GDP pulled out of Spanish banks and sent out of the country.
In case you were wondering, yes, that is a nightmare scenario.

#6 The unemployment rate in Spain is over 25 percent.  The youth unemployment rate in Spain is well over 50 percent.  Spain is a tinderbox that could be set ablaze at any moment.

#7 The yield on 10 year Spanish bonds is up to 6.85 percent.  This is an unsustainable level, and if rates don't come down on Spanish debt soon it is inevitable that Spain will end up just like Greece.

#8 On Monday it was announced that Spanish banking giant Bankia will be getting an emergency "cash injection" of between 4 and 5 billion euros.  
Apparently "cash injection" sounds better to the politicians than "a bailout" does.

#9 The housing crash in Spain just continues to get worse.  It is being reported that some homes in Spain are being sold at a 70% discount from where they were at the peak of the market back in 2006.  At this point there are approximately 2 million unsold homes in Spain.

#10 There are persistent rumors that the government of Spain will soon be forced to officially ask for a bailout from the rest of Europe.  But who is going to bail them out?  Most of the other governments of the eurozone are on the verge of bankruptcy themselves.

#11 Manufacturing activity in Europe has contracted for 13 months in a row.  The following is from a recent Reuters report....

The downturn that began in the smaller periphery members of the 17-nation bloc is now sweeping through Germany and France and the situation remained dire in the region's third and fourth biggest economies of Italy and Spain.

"Larger nations like France and Germany remain in reverse gear... the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter," said Rob Dobson, senior economist at data collator Markit.

Markit's final Purchasing Managers' Index (PMI) for the manufacturing sector fell from an earlier flash reading of 45.3 to 45.1, above July's three-year low of 44.0, but notching its 13th month below the 50 mark separating growth from contraction.

#12 Chinese exports to the EU declined by 16.2 percent in July.  U.S. exports to Europe have been steadily falling as well.

#13 Slovenia and Cyprus are two other eurozone members that are in desperate need of bailout money.  The dominoes just keep falling and nobody seems to be able to come up with a plan to "fix" Europe.

#14 Even the "strong" economies in Europe are being dragged down now.  For example, unemployment in Germany has risen for five months in a row.

#15 According to one recent poll, only about one-fourth of all Germans want Greece to remain a part of the eurozone.  The odds of a breakup of the euro seem to rise with each passing day.

#16 It is now estimated that bad loans make up approximately 20 percent of all domestic loans in the Greek banking system at this point.

#17 The suicide rate in Greece is more than 30 percent higher than it was last year.  People are becoming very desperate in Greece and there is no end in sight to the economic depression that they are going through.

#18 Large U.S. companies have been rapidly getting prepared for a Greek exit from the eurozone.  The following is from a recent New York Times article....

Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.

Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.

Every time European leaders get together they declare that they have "a plan" that will solve the problems that Europe is experiencing, but as we have seen things in Europe just continue to get worse with no end in sight.

A key date is coming up in the middle of this month.  On September 12th, Germany's Constitutional Court will determine the fate of the recent fiscal pact and the ESM.  According to UniCredit global chief economist Erik Nielsen, if the court rules against the fiscal pact and the ESM the fallout will be catastrophic....

"If they were to surprise us by striking down Germany's participation, I would think it'd be an utter bloodbath in markets"

But that is not the only thing that could set off a full-blown panic in the financial markets.

The truth is that Europe is teetering on the edge.

One wrong move and it is going to be 1929 all over again.

As I have maintained all along, the next wave of the economic collapse is rapidly approaching, and this time the epicenter for the crisis is going to be in Europe.

But that does not mean that things are going to be easier for the United States than last time.  We have never even come close to recovering from the last recession.  Most Americans families are just barely getting by.  In fact, 77 percent of them are living paycheck to paycheck at least part of the time.

Right now there are millions of Americans that have lost their jobs and their homes in recent years and that feel forsaken by society.

After this next wave hits us there will be tens of millions of Americans feeling the pain of economic desperation.

The last wave of the economic collapse hurt us.

This next wave is going to absolutely devastate us.

Watch what is happening in Europe very carefully.  What Greece, Spain, Italy and France are experiencing right now is going to hit us soon enough.