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Thursday, September 20, 2012


Well, oil is still pressured downwards. Always start with the bright side. 

Initial Claims, US: This week's headline of 382K is exactly the same as last week's headline of 382K, but that was revised upward to 385K. The moving 4-week average therefore comes up to 377,750. Not good news, but continuing claims are not piling up yet. 

It's worth noting that recessions don't start with rising layoffs. The initiation is generally marked by a dropoff in new job creation. We seem to be in that mode right now. 

PMIs. I don't want to dwell on this unpleasantness, but Euro PMI is quite depressing with a composite output index of 45.9. Germany did better, France did much worse with a kind of shocking composite output index of 44.1. Although Germany did better, the strength (50.6) was in the services sector, and outstanding work for services dropped hard, so Q4 doesn't look that good there either. Employment is trending downwards everywhere now. These are preliminary for September. The takeaway is that the recession in Europe deepened in the third quarter, and unfortunately appears to be getting worse just in time for the fourth quarter - a fact which just cannot make anyone happy. 

China: Output index at 47 (manufacturing). Stocks of finished goods still expanding. Slowdown will continue into the next quarter.

US (manufacturing): A modest expansion, but output index is lower, new export orders declined faster, and in this month's report, backlogs of work changed direction to contract at 48.9. So while this is much less unpleasant than the Euro version, it's not what you want to see on your plate. There has been a difference between the contraction/expansion summer levels between ISM and Markit, with Markit being the more positive. Declining industrial production in August may indicate that ISM is the more accurate at the moment. They appear to be converging.

Philly Fed survey up this morning - Empire was a negative surprise this week, so maybe Philly Fed will look better.

I'm not sure what the heck happened in France. A manufacturing output index of 39.6 is almost incredible. Maybe there were strikes I missed. We certainly can kiss Q4 goodbye in Europe. In the US we are still in slow sag mode.The US economy has mono; the European economy has a whopping case of flu with respiratory complications.

In the meantime, the international peace and amity explosion is very impressive.

Well, Philly Fed is something of a disappointment. The headline looks a lot better, at only -1.9. But shipments fell to -21.2, a big drop. Unfilled orders continued their drop. However inventories are declining, so maybe we are closer to stabilization. After five negative months, we should be getting closer to that point. Employment at -7.3 and the average workweek is still contracting also. One of the special questions was on Q4 production expectations, which was as negative as Q3 production reports. The six month outlook is getting better, but that may not mean much if a negative quarter is expected first. 47/35 (negative) in Q3 vs 45/32 (negative) in Q4 doesn't exactly provide a vista of hope.

Initial claims are drifting deep into exponential trend failure territory.

There is still a chance that the trend can un-fail, but I'm not holding my breath. Sigh.
Regarding "Peace and amity" and the Chinese Audi dealership with a banner stating that "Japanese must be killed" ...

Is there sufficient "free speech" in China that we could interpret the banner as "just a disgruntled individual", or is this DEFINITELY at the behest of The Authorities (in which case I'd say it's "Look! Squirrel! Pay no attention to the economic crash!!!")?
A_Nonny - this is definitely not a governmental thing, and is probably the act of employees at the local dealership. The company is a joint venture with Audi, and the employees are probably afraid the Chinese people would think the cars were Japanese and so they would lose sales.

It's been reported that some drivers are afraid to use their Japanese cars in China for fear of attack or vandalism.
Mark - I don't think there's any chance the trend will reverse quickly. I think it will slowly grow worse, but only very slowly.

That would certainly be consistent with stagnation.

Or should I say donnerstagnation?
It will grow slowly worse until it doesn't. At which point rapidly returns the menu. Better doesn't enter into it, because right now is as good as it gets in the new normal.

Ah well, on the plus side I've gone from being part of U-6 to being excessively busy for the next two months. Got to get the equipment built before the rules change again, you know.
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