Thursday, December 01, 2011
US, Proudly Finishing The Job
Initial Claims: Initial claims are still good in comparison with recent history, headlining at 402K. But this report has really been slightly weaker than it has appeared over the last month, with continuing claims rising. The four week running average rose again, and it looks like it will rise considerably over the next couple of weeks due to two low weeks dropping out. But not dire or alarming yet, although it raises questions. NACM combined declined very slightly in November, but I think overall strong Chicago PMI show that it's not a pending cartwheel. Still, the long term pace for the US is weakening.
Persons claiming benefits in all programs is rising again also - it's back over 7 million. This has to be watched carefully - remember, I'm still thinking we are in a skipping recession pattern, and much of our ability to remain in the skip zone is based on the theory that there are out-of-sync waves in our economy so net employment isn't going to drop that much. If I am wrong and the situation is more serious, the first notification of my stupidity will probably show up in the continuing claims numbers, which would indicate a stronger degree of correlation than I believed existed. I expect to see some temporary rises, but they should be short-term.
Global manufacturing PMIs are truly not encouraging. I only see some strength in the Americas, really, although India is still hanging in with marginal, weakening growth and Russia reported strength - see the comments in the release for some skepticism. Canada, which is always correlated with US auto, is hanging in there. Brazil, which has been in outright contraction for months, is improving a bit. The Aussies are strongly linked to Asia, and as you might expect, their manufacturing PMI is still under 50.
China jumped off the diving board, and you have to read the comments to detect that the weakness was not in export orders! Taiwan continues in strong contraction. Manufacturing in South Korea is in strong contraction. Japan is more stable but still hanging down there in the marginal contraction zone; the increasing dependence of Japan on exports to China do not make me optimistic on this one. On the other hand, inflation in China seems to have been addressed. They will have one hell of time getting over 6% growth next year IMO, which seems to be quite negative compared to all the experts. I hope the experts are right but I don't see how they can be. China can hurl tons of resources into building masses of low-income housing, but it is doubtful they can get the uptake where they are trying to build them. There is such a load of debt that has to come off that economy that it's intimidating.
As for Europe, the recession continues, and the strange sovereign attractors of weakness seem to be strengthening; Spain at 43.8 illustrates the difficulty that the new regime over there has, and is matched by Italy's 44. Austria went below 48. The Netherlands fell to 46. Poland fell below 50. The Czechs are now declining fast, falling three flipping points in one month to 48.6. In one effing month. These last two are highly worrisome. In the slightly stronger category, Germany's final was 47.9. France, 47.3. This leaves Eurozone PMI at 46.4, and the steepness of the declines in most countries as well as the current level indicate that there are months more in the barrel.
My conclusion from the above is that the Austrian line of financing has fallen down, and that Europe now enters the crash-o-rama zone. The only thing that will produce these high rates of correlation are massive natural disasters or a shortage of operating cash, and in this case it is the shortage of operating cash. ECB needs to be buying bonds to boost the money supply back up - it doesn't need to worry about neutralizing excess money supply from those purchases, because the real money supply is apparently collapsing.
Now, my original theory that Germany could maintain some marginal GDP growth next year appears called into question. And it's not subtle. Germany's either going to be close to 1 or even 1.5% real growth, or it is going to contract more than 1%. Kind of a big gap between the either-or!
Anyway, there are airy reports that the auctions in Europe did well. France was okay, but Spain is still in the barrel. Given the strong real-world evidence of recession, one would expect a flight into sovereign bonds, but clearly this isn't able to take place very efficiently.
to keep the economies moving. If they stop, we get
deflation. Paper assets without trust quickly become
worthless. Without changes to the tax code or trade
policies, we have to print.