Recent Updates

  • New Zealand: NZIER Business Opinion Survey (Q3)
  • Hungary: Credit to Households and Nonfinancial Corporations (Aug)
  • US: Construction (Aug)
  • Markit: Mfg PMIs: Australia, ASEAN, Thailand, Vietnam, Malaysia, Taiwan,
  • more updates...

Economy in Brief

EMU PMIs Drop Harder the Year Ahead of Surviving Dangerously
by Robert Brusca  January 2, 2013

MFG PMIs continued to slip in December despite some hope that there might be a bounce. Four of nine nations in the table saw a minor bounce in December but the weighted EMU overall index fell. The German index fell, too. Improving month-to-month were Denmark, The Netherlands, Italy and France (barely). However the breadth of this weakness is so extensive that is has the EMU index even lower in its historic queue than most of its large-country constituent members. France is at the 10.5% mark of tis queue meaning it is lower than its current reading only about 10% of the time. The EMU metric is at 13.2 % the German metric is 15.1% Denmark is the relative strongest at the 67th percentile followed by Ireland at its 50th percentile. They make tiny contributions to the EMU overall index.

Angela Merkel has been warning Germans that 2013 will be a hard year not an easy year. And she is running for re-election. Obviously she is trying to dial down expectations.

China's MFG is coming back to life but I do not know what that means. It is not good news for Europe or the US if she will be exporting more to us. The US and Europe are suffering from excessive debt. Consumers will not be absorbing much output from China. Where is this increased output from Chain going to go? China needs to develop its internal market and spur its own demand. If that is the demand that Chinese MFG output is feeding it is good news.

But be very wary of China. Its need (to growth and keep its political stability) is not the same as our need or Europe's which is to get control of our fiscal debt and to corral our appetites for imports.

What 2013 is looking like 2013 sets some high hurdles for policymakers and at a time when they already are stretched. Europe needs a policy shift so does the US. Europe is only kicking the can down the road and it needs to figure out what will make its Zone sustainable. Of course after the German elections late in the year, that answer could be different from what it would be today.

The US has just affixed a very temporary fiscal patch and the President still has to find a way for the economy to survive a vote to hike the debt limit where the Republicans are now waiting to ambush him to get back at him for giving them so little in the cliff negotiations. There is still a spending sequestration trap as the spending sequestration has only been moved back a few months the issue was not resolved.

The Republicans gave in on taxes. They managed to save some affluent (but not rich) Americans from the tax hike. The middle class got to keep the Bush tax cuts. That's a partial victory for them, but Democrats are taking credit for it.

Looking ahead this tax hike on the rich is all for show. It will finance nothing. The future US deficits loom as large as ever. The cliff smoothing has insured that future debt is now piling up at an enormous rate as the AMT was cut back the middle class kept their cuts and the 40% 'savings' on doctor fees (part of what is supposed to help 'finance' ObamaCare) has been pushed back.

The irony is and always has been that shaving the fiscal cliff equals fiscal irresponsibility.

That is unless the part of the cliff that as shaved was offset by a cut in government obligations down the line. And there was no quid pro quo for the lost tax revue of the allowed middle class tax cut or the pushing out of the AMT. And there was no deal on spending cuts except to agree to deal with it later.

This is the era of kicking the can down the road. I'm not sure if that is one on the famous Chinese years... the year of the rat, the year of the dragon the year of kicking a garbage filled can down the road so the garbage spills out and pollutes the countryside? I just don't know. But it is what everyone is doing.

China does not want to fix its external surplus issue or let it's currency rise. Japan can't figure out what to do and has been reluctant to do more of anything. That seems to be changing. Europe is at odds with itself and that might shift late in the year after German politics are no longer in the equation. In the US it is a political log jam. And the economy has been taken hostage and I fear that it is getting weaker even though the cliff has been smoothed.

Even the Pope has stepped into the fray arguing that income distribution has become a problem in some capitalist economies (story).

THIS IS 2013 ready, set, go? It is off to an odd raucous start. Not a good start. Republicans and Democrats are at one another's throats in the US and each is hiding the truth from the American people. Europe's markets are rallying on the farce of a US debt deal. Meanwhile the Markit PMIs show that Europe is still slipping and maybe its markets should worry more about what is happening at home and how to fix that. 2013 is starting out as a Three Stooges movie. Log-jam or Pendulum politics in the US, denial in Europe, mind-over-matter in China. It looks like another year of pulp fiction.

Markit MFG Indices
Dec-12 Nov-12 Oct-12 3-mo 6-mo 12-Mo Percentile Queue %
EMU 46.10 46.16 45.45 45.90 45.49 46.21 49.3% 13.2%
Germany 46.00 46.80 45.99 46.26 45.64 46.66 45.6% 15.1%
France 44.59 44.50 43.73 44.27 44.17 45.57 42.3%
Italy 46.71 45.05 45.50 45.75 45.15 45.55 49.7% 19.1%
Spain 44.55 45.35 43.52 44.47 44.05 43.79 56.0% 18.4%
Austria 48.13 49.35 44.80 47.43 46.91 49.01 52.1% 19.1%
Greece 41.39 41.78 41.04 41.40 41.72 41.18 21.1% 8.6%
Ireland 51.39 52.42 52.14 51.98 52.09 51.36 77.5% 50.7%
Netherlands 49.62 48.17 48.86 48.88 49.33 49.19 56.2% 35.5%
Denmark 57.00 56.70 55.60 56.43 52.82 53.64 72.8% 66.4%
UK 51.41 49.20 47.94 49.52 48.81 49.16 68.0% 67.8%
Sweden 40.40 40.60 42.00 41.00 43.92 47.51 30.1% 9.6%
Percentile/Queue is over range since Dec 00;Jan 05 for Sweden;Feb 04 for Norway
large image