Louise Curley

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 China's e merchandise trade exports rose 3.4% in September from 168.6 Bil
 US$ in August to 174.3 Bil US$ and were 10.2% above September, 2011.&nbsp;
 The good news was dampened&nbsp; by an article on the front page of
 today's Financial Times, headed &quot;Chinese exporters belie
 upbeat data&quot;.&nbsp; Exporters point to the sagging demand for Chinese
 products in the western countries and rising wages and raw material prices
 in China.&nbsp; The trend in year over year percent changes in exports, as
 shown in the first chart, gives credence to the exporters'
 complaints.&nbsp; The year over year percent changes in exports have
 clearly shown a downward trend.
 
 The trend in China's merchandise exports to the European Union and the
 U. S. also confirm the exporters' complaint of sagging demand in the
 western countries. The year to year changes in these exports are shown in
 the second chart.&nbsp; The year over year changes in China's exports to
 the European Union have been negative for most of this year and have
 become increasingly negative since June.&nbsp; Although China's year to
 year change in exports to the U. S. have not been negative, the trend in
 the year to year changes has been downward.&nbsp;
 
 The levels of exports, imports and balances are shown in the third
 chart. 
 
 
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
 <tr >
 <td class="firstcol" >CHINA TRADE</td>
 <td >Sep'12</td>
 <td >Aug'12</td>
 <td >Sep'11</td>
 <td >M/M %</td>
 <td >Y/Y %</td>
 <td >2011</td>
 <td >2010</td>
 <td >2009</td>
 </tr>
 </thead>
 
 <tr class="odd" >
 <td class="firstcol">Exports (Bil US$)</td>
 <td >174.3</td>
 <td >168.6</td>
 <td >157.5</td>
 <td >3.39</td>
 <td >10.2</td>
 <td >1890.0</td>
 <td >1573.5</td>
 <td >1197.0</td>
 </tr>
 <tr >
 <td class="firstcol">Imports (Bil US$)</td>
 <td >148.7</td>
 <td >146.1</td>
 <td >144.1</td>
 <td >1.80</td>
 <td >3.19</td>
 <td >1741.9</td>
 <td >1394.8</td>
 <td >1001.3</td>
 </tr>
 <tr class="odd" >
 <td class="firstcol">Balance (Bil US$)</td>
 <td >25.6</td>
 <td >22.5</td>
 <td >13.4</td>
 <td >3.0*</td>
 <td >12.2**</td>
 <td >148.1</td>
 <td >178.7</td>
 <td >195.6</td>
 </tr>
 <tr class="grey3">
 <td ></td>
 <td >Sep'12</td>
 <td >Aug'12</td>
 <td >Jul'12</td>
 <td >Jun'12</td>
 <td >May'12</td>
 <td >Apr'12</td>
 <td >Mar'12 </td>
 <td >Feb'12</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports to U.S. (Y/Y)</td>
 <td >5.49</td>
 <td >2.96</td>
 <td >0.56</td>
 <td >10.60</td>
 <td >22.99</td>
 <td >10.01</td>
 <td >14.03</td>
 <td >22.59</td>
 </tr>
 <tr>
 <td class="firstcol">Exports to EU (Y/Y)</td>
 <td >-10.70</td>
 <td >-12.68</td>
 <td >-16.24</td>
 <td >-1.12</td>
 <td >3.43</td>
 <td >-2.38</td>
 <td >-3.11</td>
 <td >2.25</td>
 </tr>
</table>

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China's e merchandise trade exports rose 3.4% in September from 168.6 Bil US$ in August to 174.3 Bil US$ and were 10.2% above September, 2011. The good news was dampened by an article on the front page of today's Financial Times, [...]

China's Exports Rise in September, but Exporters Wary

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Tom Moeller

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Nonfarm payrolls increased 142,000 (1.5% y/y) during August after rising 89,000 in July, revised from 114,000. During June, payrolls rose 118,000, revised from 179,000 while May payrolls rose an unrevised 216,000. Expectations had been for a 162,000 August increase in the Action Economics Forecast Survey.

Average hourly earnings strengthened 0.4% in August following unrevised gains of 0.2% and 0.3% in the prior two months. The y/y earnings increase improved to 3.8% from 3.6% in July, but was below the 5.9% high in March 2022.

The unemployment rate, measured in the household survey, eased to an expected 4.2% in August from 4.3% in July. It remained near the highest level since October 2021 after having reached a low of 3.4% in April of last year. Household employment rose 168,000 after increasing 67,000 in July. The labor force increased 120,000 after a 420,000 July rise. The overall unemployment rate, including workers who were marginally attached & working part-time for economic reasons, rose to 7.9% from 7.8% in July. It was the highest rate since October 2021.

In the **payroll survey**, private-sector employment increased 118,000 (1.4% y/y) in August after rising 74,000 in July. Construction sector employment increased 34,000 (2.8% y/y) last month after rising 13,000 in July. Factory sector payrolls offset this rise with a 24,000 decline (-0.1% y/y) after a 6,000 in July increase. Mining & logging sector jobs held steady (-1.2% y/y) after a 1,000 July increase.

Private service-producing sector employment increased 108,000 in August (1.5% y/y) after a 54,000 July rise. Employment changes varied greatly amongst service sector categories. Education & health service jobs rose 47,000 (3.9% y/y) following a 55,000 July rise while leisure & hospitality employment rose 46,000 (1.7% y/y) after a 24,000 gain. Professional & business service jobs improved 8,000 (0.4% y/y) after falling 13,000 in July. Within that category, the number of temporary jobs declined 2,900 (-5.8% y/y) and have fallen consistently since a March 2022 high. Trade, transportation & utilities employment gained 2,000 (0.7% y/y) after rising 9,000 as the number of retail jobs fell 11,100 (+0.4% y/y). Financial activities jobs rose 11,000 (0.4% y/y) after falling 1,000 in July. Information sector employment fell 7,000 (+0.1% y/y) after weakening 15,000 in July.

Government sector payrolls increased 24,000 last month (1.9% y/y) after 15,000 July increase. Local government jobs rose 22,000 (1.8% y/y) after July’s rise of 5,000, while state government employment edged 1,000 higher (2.3% y/y) after a 10,000 gain. The number of federal government jobs also inched 1,000 higher (2.0% y/y) after holding steady in July.

The 0.4% August rise in private-sector average hourly earnings reflected a 0.3% gain (4.7% y/y) in the goods-producing sector which was the same as in July. Earnings in construction improved 0.3% (4.4% y/y) following a 0.4% gain while factory sector pay increased 0.4% (4.9% y/y) after rising 0.2%. In the private services-sector, earnings rose 0.4% last month (3.6% y/y) after a 0.2% gain. Professional & business service sector earnings grew 0.4% (4.3% y/y) for the third time in four months. Leisure & hospitality earnings improved 0.2% (4.0% y/y) while information sector earnings strengthened 0.9% (3.7% y/y) after rising 0.4% for three straight months. Financial sector earnings rose 0.6% (4.6% y/y) after a 0.3% gain. Private education & health services earnings improved 0.2% (3.1% y/y), the same as in July. Trade, transportation and utilities pay rose 0.5% (3.0% y/y) in August after edging 0.1% higher in July.

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The length of the average workweek in the private sector edged up to 34.3 hours in August from 34.2 in July. The workweek in the goods-producing sector of 39.8 hours last month compared to 39.7 hours in July. The construction sector average workweek lengthened to 39.0 hours from 38.9. The factory sector workweek improved to 40.0 hours from 39.9 while the average workweek in the private service sector remained at 33.2 hours for the fifth straight month.

In the **household survey**, the decline in the jobless rate to 4.2% occurred as employment and the size of the labor force rose slightly. The labor force participation rate held at 62.7%. The rate for teenagers declined sharply for the third straight month from 38.1% in May to 35.7% last month, while for individuals aged 20-24, it also has fallen sharply to 70.5% from a high of 72.7% in January. For rate for workers aged 25-54, the rate eased to 83.9% but remained near the highest since 2001, and for workers 55 and over it rose to 38.6%, the highest level since March.

The employment/population ratio for all workers held steady at 60.0% in August and was slightly below where it was twelve months earlier. It remained below its high of 61.1% in February, 2020 just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Job gain remains part of decelerating trend with earlier months’ growth revised lower.
- Earnings strengthen m/m but trend increase remains weak.
- Jobless rate edges lower; upward trend continues.

U.S. Employment Disappoints in August; Jobless Rate Eases

Robert Brusca

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Industrial production in July fell sharply by 2.4% after rising 1.7% in June and falling 3.1% in May. As a result of this production turbulence, Germany continues to experience declining and decelerating output growth. Over 12-months output falls at a -5.3% rate, over six months the pace steps up slightly to a -5.5% annual rate, but over three months industrial production in Germany is falling at a -14% annual rate.

This sequential slippage is mirrored in the declines of consumer goods, capital goods and intermediate goods production where the production of each of these sectors declines over 12 months, six months, and three months. Consumer goods and intermediate goods decline slightly more slowly over six months compared to 12 months, but all the categories show much sharper declines over three months than over 12 months. There's a clear tenancy for German production to show bigger declines over shorter periods and that's a disturbing development. In addition, all the sectors show declines month-to-month in July.

Manufacturing output in total shows a decline of 3.2% in July. As for overall output, manufacturing increased in June and fell sharply in May. Sequentially manufacturing output is persistently decelerating, as its 5.8% 12-month drop becomes an annual rate of decline of 17% over three months.

**Hope in New Orders**
However, real manufacturing orders break this trend and may offer hope for a turnaround as real orders rise by 2.9% in July and by 4.6% in June after a 1.7% drop in May. Sequentially real orders are not just growing but they are accelerating from an increase of 3.8% over 12 months to an annual rate of 25.7% over three months. The path being sketched out by real manufacturing orders is explosively strong while the path being sketched out by actual manufacturing output is impulsively weak. So it looks like the resolution is going to be for manufacturing output to be dragged up from the depths in the coming months by strengthening orders- or at least that's how it appears from these trends. For the time being, sales remain weak, real sales and manufacturing fell in July, June, and May; they are declining at an accelerating pace from 12-months to six-months to three-months. Real sales and manufacturing declined, at a -5.8% rate over 12 months, at a -6.9% annual rate over six months and then at a -12.2% annual rate over three months. For the time being, manufacturing is a hotbed of cross currents.

**Indicators are mixed**
Other indicators from ZEW, from IFO and from the EU Commission are mixed. These are from surveys that often are a little bit more sensitive and up-to-date readings than data on actually booked orders or on actually executed output or experienced sales. However, there is no hint of the kind of strength that we see in orders in these indicators. The ZEW current index shows negative readings sequentially from 12-months to six-months to three-months, but it does improve sequentially in modest steps. The IFO index for manufacturing does show some step up from 12-months to six-months to three-months. IFO manufacturing expectations also step up from 12-months to six-months to three-months but even this is somewhat moderate from 87.8 as an index reading over 12-months to 90.9 over six months to 92.2 over three months; it's a progression of advance but a minor league advance. Meanwhile, the EU Commission indexes show weakening from a -16.5 in their net diffusion reading over 12 months, to -17.7 over six months, to -17.8 over three months.

**Other Europe**
Three European countries are early manufacturing reporters: Portugal, France, and Norway. Among these three countries, two of them have output declines in July. Norway is the exception with a solid 2% increase month-to-month in July, an increase of 2% in June and at 1.7% in May; it is showing accelerating growth from 12-months to six-months to three-months. Norway is a real success story. However, both Portugal and France show industrial production decelerating steadily from 12-months to six-months to three-months; in both cases, the three-month decline culminates in a negative growth rate in double-digits.

**Quarter-to-date trends**
The quarter-to-date statistics show declines across all German manufacturing categories apart from real manufacturing orders. Of course, that shows a sizeable gain of nearly 38% at an annual rate in the quarter. It stands alone in that regard. The other indicators from ZEW to the IFO to the EU Commission also decline in the quarter-to-date except for the current ZEW index which improves by 6.2 points in July compared to the previous quarter’s average level. Manufacturing output for the three European countries shows sizable declines in the quarter-to-date for Portugal and France with Norway showing an annual rate increase at a stupendously strong 26.3% annual rate.

On balance, manufacturing in Germany is weak and it's weak across all categories. The ray of hope comes from real manufacturing orders that are surging as strongly as current output is declining. Sales in manufacturing are also weak. The IFO indicators for Germany are showing some progression towards better circumstances as is the index from ZEW. The EU Commission is eroding slightly sequentially as well as in recent months. There is hope but it runs against the grain of trend.

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Germany

German IP Drops Sharply in July and Broadly

Andrew Cates

**The policy rate consensus** 
Dovish comments from central bankers in recent weeks have amplified expectations for a global policy easing cycle over the past few weeks. Fed Chair Powell’s address at the Jackson Hole symposium, in which he noted that upside risks to inflation have diminished, and the downside risks to employment have increased, have certainly suggested the direction of travel for US policy rates is clear. This chimes too with the latest survey of Blue Chip Financial Forecasts. US policy rates, for example, are expected to decline from current levels by nearly 150bps over the next 12 months. That contrasts with the UK and euro area, where policy rates are expected to decline by 130 and 138 basis points respectively.

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**Inflation progress**
Well-behaved inflation data have been another key driver of these interest rate expectations. Headline inflation rates in most major economies have continued to decline over the past few weeks and, at least as far as the US, the euro area and the UK are concerned, were not that far above central banks’ target levels. Incoming inflation data have, on the whole, also been surprising forecasters’ expectations on the downside in recent weeks with some underlying stability in the price of oil a key factor assisting that trend (chart 2).

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**The global business cycle**
While forward-looking PMI readings for many economies have remained relatively stable in recent months, several have experienced some significant swings. For instance, France has seen a notable improvement, though it is worth noting that the August figures were significantly bolstered by activity from the Olympic Games. Conversely, Germany has struggled, with its PMI falling further into contraction territory due to ongoing weaknesses in the manufacturing sector. Meanwhile, India continues to stand out relative to its peers with consistently strong PMI readings over recent months (see chart 3).

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**China’s excess capacity**
China’s economy stands out too as its latest PMI survey suggest its economy has lost much momentum over the past 3 months, largely because of some further weakening in the manufacturing sector. Digging into some of the underlying details of the manufacturing survey also reveals persistent downward pressure on that sector’s output prices (chart 4). Given the importance of China’s manufacturing sector for world trade, which might herald broader disinflationary pressures in the traded goods sector in the period ahead as well.

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**Japan’s carry trade**
While some of the initial volatility in Japan’s currency markets has stabilized since the decision by the BoJ to lifts its policy rate, fundamental drivers are turning increasingly unfavourable for the carry trade. Specifically, Japan’s yield differentials with other major economies are becoming less advantageous, as evidenced in chart 5 below. As chart 1 above additionally underscores, this shift is being further compounded by the BoJ’s ongoing – and expected - tightening measures, which stand in vivid contrast to the easing cycles now underway from other major central banks.

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**US monetary policy and labour markets**
With central banks arguably now slowly switching their attention away from inflation, the prospective dataflow on economic growth – and perhaps more significantly, labour market activity - is taking on more importance. On that score (and writing ahead of the publication of August’s US employment report on Friday September 6th) it has certainly been notable that much of the incoming US labour market data have disappointed expectations in recent weeks and that financial markets have responded to this by pricing in more easing from the US Fed (see chart 6).

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With the summer vacation season now over in the Northern Hemisphere our charts this week shed light on recent and prospective developments in the world economy. Latest data have, on the whole, reinforced expectations that most central banks will loosen monetary policy in the immediate months ahead (chart 1). And that’s partly because incoming inflation data have been well-behaved (chart 2). In the meantime, forward-looking survey data have, with one or two exceptions, remained above the threshold that would typically generate recession alarms (chart 3). Soft landing narratives have, accordingly, remained in vogue. That being said, lingering imbalances—particularly in China (chart 4)—combined with growing concerns about an unwinding of Japan’s carry trade (chart 5), have left the risks to the global economic outlook skewed to the downside. Added to that, the potential profitability of technology companies and the broader health of the US economy are also now being more actively challenged (chart 6). Either way, central banks continue to face a complex mix of challenges in the period ahead, not least if political instability (e.g. in the US) were to hamper confidence in the final quarter of this year.

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Charts of the Week: Back to School

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 99,000 (1.3% y/y) during August following a 111,000 July increase, revised from 122,000. June’s rise of 155,000 was unrevised. It was the weakest increase since January 2021, down from the most recent high of 211,000 in March of this year. A 148,000 rise in ADP employment had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" held at 4.8% y/y in August. It remained the weakest growth since July 2021 and well below a September 2022 high of 7.8% y/y. Pay increases in education & health services of 5.1% y/y compared to a high of 7.3% in October 2022 while construction sector earnings rose a diminished 5.2% y/y. Manufacturing pay growth averaged a steady 4.7% y/y and leisure & hospitality rose a diminished 4.9% y/y. Professional & business services pay grew a lessened 4.7% y/y. Pay increases for “job changers” averaged a steadied 7.3% y/y last month, remaining well below the 16.4% y/y peak in June 2022.

Small business hiring (less than 50 employees) declined 9,000 (+0.2% y/y) last month after easing 1,000 in July. Employment at medium-sized firms (50-499,000 employees) rose 68,000 (1.8% y/y) after a 60,000 July increase. These gains stood below the March high of 113,000. Large business hiring (500+ employees) rose 42,000 (2.7% y/y) during August following a 52,000 July gain. It remained the smallest increase since January.

Goods-producing employment rose 27,000 last month (1.0% y/y) after a 30,000 July rise. The number of construction sector jobs rose 27,000 (3.6% y/y) following a 31,000 July increase. Hiring in the manufacturing sector fell 8,000 (-0.1% y/y) last month, the fourth consecutive monthly shortfall. Natural resource & mining hiring improved 8,000 (-1.9% y/y) after a 2,000 rise in July.

The number of service-producing jobs rose 72,000 (1.4% y/y) in August following an 81,000 July gain. Leisure & hospitality employment rose 11,000 (2.0% y/y) after improving 10,000 in July and education jobs gained 29,000 (2.3% y/y) following a 66,000 July increase. The number of jobs in trade, transportation & utilities increased 14,000 last month (0.9% y/y) following a 46,000 July gain. Employment in “other” services rose 20,000 (3.3% y/y) after increasing 16,000 in July. Moving lower, professional & business services employment declined 16,000 (+0.1% y/y) after falling 47,000 while information employment fell 4,000 (-1.8% y/y), the fifth consecutive monthly decline.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Latest job gain is less-than-half its March 2024 high; factory jobs decline for fourth straight month.
- Service-sector slowdown is broad-based. Construction job growth slows. 
- Wage growth for “job stayers” stabilizes y/y.

China's Exports Rise in September, but Exporters Wary

Summary

Louise Curley

More Economy in Brief

U.S. Employment Disappoints in August; Jobless Rate Eases

German IP Drops Sharply in July and Broadly

Charts of the Week: Back to School

ADP Employment Increase Weakens in August; Pay Growth Remains Moderate

CHINA TRADE	Sep'12	Aug'12	Sep'11	M/M %	Y/Y %	2011	2010	2009
Exports (Bil US$)	174.3	168.6	157.5	3.39	10.2	1890.0	1573.5	1197.0
Imports (Bil US$)	148.7	146.1	144.1	1.80	3.19	1741.9	1394.8	1001.3
Balance (Bil US$)	25.6	22.5	13.4	3.0*	12.2**	148.1	178.7	195.6
	Sep'12	Aug'12	Jul'12	Jun'12	May'12	Apr'12	Mar'12	Feb'12
Exports to U.S. (Y/Y)	5.49	2.96	0.56	10.60	22.99	10.01	14.03	22.59
Exports to EU (Y/Y)	-10.70	-12.68	-16.24	-1.12	3.43	-2.38	-3.11	2.25