This morning has seen the first actual signals of the scale of the economic slow down going on. One of the problems with official economic data is the time lag before we get it and this has been exacerbated by the fact that this has been an economic contraction on speed ( LSD). By the time they tell us how bad it has been we may be in quite a different world! It is always a battle between accuracy and timeliness for economic data. Thus eyes will have turned to the business surveys released this morning.
Do ya do ya do ya do ya
Ooh I’m looking for clues
Ooh I’m looking for clues
Ooh I’m looking for clues ( Robert Palmer)
Japan
The main series began in Japan earlier and brace yourselves.
#Japan‘s economic downturn deepens drastically in March, dragged down by a sharp contraction in the service sector, according to #PMI data as #coronavirus outbreak led to plummeting tourism, event cancellations and supply chain disruptions. ( IHS Markit )
The composite output index was at 35.8 which indicates an annualised fall in GDP ( Gross Domestic Product) approaching 8% should it continue. There was a split between manufacturing ( 44.8) and services ( 32.7) but not the way we have got used to. The manufacturing number was the worst since April 2009 and the services one was the worst since the series began in 2007.
France
Next in the series came La Belle France and we needed to brace ourselves even more.
March Flash France PMI suggest GDP is collapsing at an annualised rate approaching double digits, with the Composite Output PMI at an all-time low of 30.2 (51.9 – Feb). Both services and manufacturers recorded extreme drops in output on the month.
There was more to come.
French private sector activity contracted at the
sharpest rate in nearly 22 years of data collection
during March, amid widespread business closures
due to the coronavirus outbreak.
There are obvious fears about employment and hence unemployment.
Amid falling new orders, private sector firms cut
their staff numbers for the first time in nearly threeand-a-half years during March. Moreover, the rate
of reduction was the quickest since April 2013.
I also noted this as I have my concerns about inflation as the Ivory Towers work themselves into deflation mode one more time.
Despite weaker demand conditions, supply
shortages drove input prices higher in March…….with
manufacturers raising output prices for the first time
in three months
We could see disinflation in some areas with sharp inflation in others.
Germany
Next up was Germany and by now investors were in the brace position.
The headline Flash Germany
Composite PMI Output Index plunged from 50.7 in
February to 37.2, its lowest since February 2009.
The preliminary data were based on responses
collected between March 12-23.
This led to this analysis.
“The unprecedented collapse in the PMI
underscores how Germany is headed for recession,
and a steep one at that. The March data are
indicative of GDP falling at a quarterly rate of
around 2%, and the escalation of measures to
contain the virus outbreak mean we should be
braced for the downturn to further intensify in the
second quarter.”
You may be thinking that this is better than the ones above but there is a catch. Regular readers will recall that due to a problem in the way it looks at supply this series has inflated the German manufacturing data. This has happened again.
The headline Flash Germany
Manufacturing PMI sank to 45.7, though it was
supported somewhat by a further increase in
supplier delivery times – the most marked since
July 2018 – and a noticeably slower fall in stocks of
purchases, both linked to supply-side disruption
So the truth is that the German numbers are closer to France once we allow for this. We also see the first signals of trouble in the labour markets.
After increasing – albeit marginally – in each of the
previous four months, employment across
Germany’s private sector returned to contraction in
March. The decline was the steepest since May
2009 and was underpinned by similarly sharp drops
in workforce numbers across both manufacturing
and services.
Also we note a continuing pattern where services are being hit much harder than manufacturing, Of course manufacturing had seen a rough 2019 but services have essentially plunged at a rapid rate.
The Euro Area
We do not get much individual detail but you can see that the other Euro area nations are doing even worse.
The rest of the euro area reported an even
steeper decline than seen in both France and
Germany, led by comfortably the sharpest fall in
service sector activity ever recorded, though
manufacturing output also shrank at the steepest
rate for almost 11 years.
I am trying hard to think of PMI numbers in the 20s I have seen before.
Flash Eurozone Services PMI Activity Index(2)
at 28.4 (52.6 in February). Record low (since
July 1998)
Putting it all together we get this.
The March PMI is indicative of GDP slumping at a
quarterly rate of around 2%,
The UK
Our numbers turned up to a similar drum beat and bass line.
At 37.1 in March, down from 53.0 in February, the seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – signalled the fastest downturn in private sector business activity since the series began in January 1998. The prior low of 38.1 was seen in November 2008.
This was supported by the manufacturing PMI being at 48 but it looks as though we have at least some of the issues at play in the German number too.
Longer suppliers’ delivery times are typically seen as an
advance indicator of rising demand for raw materials and
therefore have a positive influence on the Manufacturing PMI index.
The numbers added to the household finances one from IHS Markit yesterday.
UK consumers are already feeling the financial pinch of
coronavirus, according to the IHS Markit UK Household Finance Index. With the country on the brink of lockdown during the survey collection dates (12-17 March), surveyed households reported the largest degree of pessimism towards job security in over eight years,
with those employed in entertainment and manufacturing sectors deeming their jobs to be at the most risk.
Comment
So we have the first inklings of what is taking place in the world economy and we can add it to the 40.7 released by Australia yesterday. However we need a note of caution as these numbers have had troubles before and the issue over the treatment of suppliers delivery times is an issue right now. Also it does not appear to matter if your PMI is 30 or 37 we seem to get told this.
The March PMI is indicative of GDP slumping at a
quarterly rate of around 2%,
Now I am slightly exaggerating because they have said 1.5% to 2% for the UK but if we are there then France and the Euro area must be more like 3% and maybe worse if the series is to be consistent.
Next I thought I would give you some number-crunching from Japan.
TOKYO (Reuters) – The Bank of Japan on Tuesday acknowledged unrealized losses of 2-3 trillion yen ($18-$27 billion) on its holdings of exchange-traded funds (ETFs) after a rout in Japanese stock prices, raising the prospect it could post an annual loss this year.
Our To Infinity! And Beyond! Theme has been in play for The Tokyo Whale and the emphasis is mine.
Its stock purchase started at a pace of one trillion yen per year in 2013 when the Nikkei was around 12,000. The buying expanded to 3 trillion yen in 2014 and to 6 trillion yen in 2016, ostensibly to boost economic growth and lift inflation, but many investors view the policy as direct intervention to prop up share prices.
Surely not! But the taxpayer may be about to get a warning of sorts.
The unrealized loss of 2-3 trillion yen would wipe out about 1.7 trillion yen of recurring profits the BOJ is estimated to make this year from interest payments on its massive bond holdings, said Hiroshi Ugai, senior economist at J.P. Morgan.
For today that will be on the back burner as the Nikkei 225 equity index rose 7% to just above 18,000 which means that its purchases of over 200 billion Yen yesterday will be onside at least as we note the “clip size” has nearly trebled for The Tokyo Whale.