Economy in Brief

Nonmanufacturing ISM: Sharp Two-Month Drop Off

ISM trends show a weakening trend in the services-mining-construction sector of the economy to add to the lethargy in manufacturing. The past two months show that the index has dropped to a much lower profile than before. This is the weakest activity recorded since early 2003. Employment trend has been ground into a lower profile as well. The results are disconcerting although it may be that ongoing construction problems are weighing on the index and services are not as weak as the index suggests.

An analysis of the position of the various ISM components in their respective ranges shows that weakness characterizes this sector. Both activity and orders are below their range midpoints and below their period average values. Order backlogs continue to appear strong as an offset, as we have seen in durable goods order report. Unlike the ISM manufacturing we see that export and import services are weak. For manufacturing these two series were quite firm. Price readings rose in the month and remain firm in their historic range. On balance, the nonmanufacturing sector does not appear to be as strong or supportive of the economy as it once was. It raises the question of whether the weakness in manufacturing and construction industries has ground down the once vibrant services sector that is nested within the nonmanufacturing ISM.

ISM Nonmanufacturing Statistics from January 1998 to Date


ISM-NMFG	Current	Std Dev	Average	SD %Avg	MAX	MIN	Range	Percentile	% of AVG
PM Activity	52.4	4.7	57.5	8.2	67.9	40.5	27.4	43.4	91
New Orders	53.8	4.7	57.2	8.2	66.9	41.3	25.6	48.8	94
Backlogs	52.5	3.7	51.0	7.2	57.0	40.5	16.5	72.7	103
Supplier Deliveries	50.0	2.1	53.6	4.0	60.5	48.0	12.5	16.0	93
Inventory Sentiment	63.0	2.7	63.1	4.3	69.0	55.0	14.0	57.1	100
Inventories	52.0	3.2	50.5	6.2	59.0	43.5	15.5	54.8	103
Prices	63.3	8.3	59.8	13.9	80.5	41.3	39.2	56.1	106
Employment	50.8	3.7	51.7	7.1	59.9	43.9	16.0	43.1	98
Export Orders	48.5	4.5	54.8	8.3	64.0	44.5	19.5	20.5	89
Import Orders	50.0	4.0	54.7	7.4	63.5	45.5	18.0	25.0	91

U.S. Factory Orders Continue to Disappoint
by Robert Brusca April 4, 2007

Each month the factory order report is a re-issue of durable goods from the week before with (usually) minor revisions plus a new look at nondurable goods shipments and inventories. This month the durable goods order gain was trimmed from a small rise of 2.5% to an even tinier rise of 1.7% for February following a plunge in January. The new data for February are for nondurable goods. Orders there rose by a meager 0.2% in the month. Over three months they are weak with shipments dropping by 1%. But the good news is that progress on inventory reduction is in train as inventories dropped by 4.4% in February. The overall trends for the factory sector cut into three month blocks shows some revival in shipments compared to past trends. And there is a relatively sharp fall off in (still high) unfilled orders. Inventories are undergoing a gradual slowing in their build up. New orders continue to drop and at a slightly accelerated pace.

Sector detail for nondurables shows a lot of weakness. Beverages are weak as are the Textile Mill and Product sectors. For Textiles inventory reduction is being achieved at a very rapid pace. Apparel has just turned positive and Leather Goods shows considerable strength. Paper Products and Printing are weak with shipments declining. Petroleum & Coal and Plastics & Rubber also are seeing shipment declines. Basic Chemicals and Pharmaceuticals & Medicines have turned sharply positive.

These are the readings that are new in the day’s report. They are hardly encouraging.

Factory Orders

Factory Orders	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-3.5%	-9.4%	-5.6%	-1.0%	6.6%
New Orders	-9.0%	-7.8%	-4.9%	-0.8%	7.1%
Unfilled Orders	14.5%	23.6%	20.3%	20.8%	17.0%
Inventories	1.0%	2.8%	5.0%	6.4%	2.5%

Nondurable goods	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-1.0%	-11.8%	-7.8%	-1.3%	5.0%
Inventories	-4.4%	-3.3%	0.2%	2.2%	4.0%
Nondurable Goods: Orders and Inventories by Industry
Food Products	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	1.7%	1.2%	2.0%	0.5%	0.9%
Inventories	-0.9%	6.3%	6.3%	4.5%	4.3%
Beverages	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-20.7%	-12.9%	-7.4%	0.1%	7.4%
Inventories	3.0%	3.2%	1.3%	-0.7%	4.2%
Textile Mills	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-3.6%	-2.4%	-3.0%	-3.1%	-12.6%
Inventories	-25.3%	-16.2%	-8.1%	-8.8%	-7.9%
Textile Products	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-4.1%	-8.6%	-11.9%	-8.5%	3.9%
Inventories	-11.6%	-9.2%	-1.3%	-2.6%	-0.6%
Apparel	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	0.8%	3.7%	-8.6%	-1.9%	8.0%
Inventories	7.4%	-22.6%	-12.4%	-9.2%	-1.1%
Leather & Allied Products	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	105.8%	14.9%	16.7%	10.1%	-2.9%
Inventories	23.4%	7.4%	15.1%	11.9%	-9.0%
Paper Products	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-2.6%	-5.5%	-5.3%	-1.5%	1.1%
Inventories	5.8%	2.9%	0.4%	1.9%	-1.9%
Printing	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-7.0%	0.4%	1.1%	3.5%	-3.1%
Inventories	-15.8%	-16.6%	-2.0%	0.7%	-2.1%
Petroleum&Coal	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-1.3%	-32.7%	-23.7%	-5.3%	17.2%
Inventories	-15.5%	-30.4%	-19.2%	4.5%	16.3%
Basic Chemicals	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	4.7%	-10.3%	-5.9%	0.2%	4.0%
Inventories	-0.4%	-1.0%	1.7%	1.9%	2.9%
Pharmaceuticals & Medicine	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	19.6%	-6.5%	-6.8%	6.3%	-1.0%
Inventories	-7.4%	-1.1%	5.5%	11.0%	-4.6%
Plastics & Rubber Products	3Mo	6Mo	9Mo	12Mo	Year Ago
Shipments	-6.6%	-12.5%	-7.0%	-3.7%	7.0%
Inventories	6.5%	5.0%	1.0%	0.7%	4.6%

India Balance of Payments Sees Dynamic Trade and Investment Flows, with Record Reserve Accumulation in 2006
by Carol Stone April 4, 2007

India's balance of payments shows an unusual amount of two-way flow in both current and financial accounts. In Q4 2006 this encompassed a variety of distinctive movements. The trade deficit widened, continuing to confound many observers' preconceptions that India shouldn't have a deficit in this account at all. Petroleum is apparently the main cause, as suggested by the second graph here. It shows merchandise imports less petroleum plotted with merchandise exports, and these two quantities have roughly the same magnitudes.

The overall current account is much more near balance, as sizable surpluses in services and unilateral transfers offset much of the trade shortfall. In fact, the net on services in Q4, right at $9.0 billion, is nearly twice as much as it was in Q4 of 2005. This is the numerical result of the "outsourcing" of many business service activities by companies elsewhere in the world. Many Indians work abroad and send money home. Private transfers in Q4 were $7.9 billion, up $1.5 billion from the same period a year ago. The balances on services and transfers were both record amounts.

Capital accounts feature sizable -- unprecedented -- direct investment flows in BOTH directions. Foreign firms acquired Indian companies and Indian companies made acquisitions abroad. Foreign investors also increased their portfolio holdings, as they bought into the Indian stock market. Other capital account transactions, including bank loans and bank deposits and assorted other kinds of lending also showed great fluidity: Indian banks made sizable loans abroad, while nonbank lending to India grew sharply.

All together, the "overall balance" in Q4 was $7.5 billion, with a commensurate increase in foreign exchange reserves. This is sizable, and such numbers are getting to be common. For 2006 as a whole, the balance totaled $29.4 billion, also a record. Such accumulations of foreign exchange will enable more flows abroad, such as the outward investments recently seen.

Haver's data on India is contained in the EMERGEPR database.

INDIA¹: Mil.US$	Q4 2006	Q3 2006	Q4 2005	2006	2005	2004
Current Account^2,3	-1,321	-2,465	-3,549	-10,006	-7,810	+781
Merchandise Trade²	-18,251	-14,346	-12,400	-63,783	-46,872	-28,036
Services²	+8,995	+7,650	+4,643	+31,428	+22,259	+13,076
Transfers²	+8,282	+5,503	+6,631	+26,290	+23,234	+19,793
Direct Investment in India	+8,669	+3,414	+2,002	+16,888	+6,663	+5,771
Direct Investment Abroad	-6,388	-1,146	-784	-9,029	-2,487	-2,179
Portfolio Investment	+3,556	+2,141	+2,748	+9,503	+12,144	+9,037
Overall Balance³	+7,507	+2,268	-4,672	+29,372	+14,460	+23,601

by:Robert Brusca

|in:Economy in Brief

Global| Apr 03 2007

Profitability of U.K. Private Nonfinancial Corporations at a Record High: Largely a Reflection of the [...]

The net profitability of all private nonfinancial corporations in the United Kingdom was 15.5% in the fourth quarter of 2006. This rate was up from 15.2% in the third quarter and was the highest quarterly rate since the series began in the first quarter of 1989, as can be seen in the first chart, which shows net and gross profitability of U.K. corporations.

Net profitability is defined as the net rate of return on capital employed. That is, it is the value of profits, allowing for depreciation, divided by the value of inventories and the depreciated value of fixed assets. Gross profitability is defined as the gross return on capital employed, that is, the value of profits before depreciation charges divided by the value of inventories and fixed assets before depreciation . These tend to be lower than the net rates of return, as shown in the first chart. While the net profitability of Continental Shelf companies (companies engaged in the extraction of oil and gas) declined to 33.5% from 37.3% in the third quarter, the profitability of the nonshelf companies rose to 14.7% from 14.2% in the third quarter. The rates of return for the Continental Shelf corporations are more volatile than those of the nonshelf corporations as can be seen in the second chart. The volatility of the Continental Shelf corporations is due, in large part, to variations in the prices of oil and gas.

Of the nonshelf companies, it is the corporations engaged in the service industries that have accounted for the rise in the overall profitability of the private nonfinancial companies. Net profitability in the service and manufacturing industries are compared in the third chart. Rates of return in the manufacturing industry tend to be lower than those in the service industries due, in part, to the greater capital intensity of the manufacturing industry relative to that of the service industry corporations, but the gap between rates of return in the manufacturing and service industries has widened as profitability in the service industries has improved and that in the manufacturing industries deteriorated.

NET PROFITABILITY OF PRIVATE NON FINANCIAL CORPORATIONS IN THE UK (%)	Q4 2006	Q3 2006	Q4 2005	Q/Q Dif	Y/Y Dif	2006	2005	2004
All Corporations	15.5	15.2	14.3	0.3	1.2	15.1	14.3	14.2
Continental Shelf Corporations	33.5	37.3	40.6	-3.8	-7.1	40.7	34.1	25.1
Nonshelf Corporations	14.7	14.2	13.0	0.5	1.7	13.9	13.4	13.5
Manufacturing Corporations	10.0	6.9	9.9	3.1	0.1	8.5	9.3	9.7
Service Industry Corporations	20.9	19.5	17.9	1.4	3.0	19.7	17.9	17.4

by:Louise Curley

|in:Economy in Brief

Global| Apr 03 2007

Euro Area and UK PPI Trends

· The Euro area 13 PPI rose by 0.3% in February. Excluding energy the rise was 0.3% as well. Trends show that PPI inflation pressures are elevated. And while the PPI is not the main focus of ECB policy, the pressure on prices is widespread across main EU countries. The bank of England has even recently said it was going to look beyond headline inflation as legacy issues might damp that calculation in the coming months. Central banks are becoming more concerned about embedded inflation pressures.

Euro area and UK PPI Trends

	M/M		SAAR
Euro area 13	Feb-07	Jan-07	3-Mo	6-MO	Yr/Yr
Total (Excl Construction)	0.3%	0.2%	2.1%	0.2%	2.9%
yes"> Excl Energy	0.3%	0.5%	3.4%	2.7%	3.4%
Capital Goods	0.1%	0.5%	2.9%	2.3%	2.0%
Consumer Goods	0.2%	0.3%	2.4%	1.2%	1.6%
Intermediate & Capital Goods	0.3%	0.6%	3.9%	3.4%	4.4%
Energy	0.4%	-0.7%	-1.8%	-7.5%	1.0%
Manufacturing	0.4%	0.1%	2.3%	-0.4%	2.5%
Germany	0.3%	0.0%	1.0%	0.3%	2.8%
yes"> Excl Energy	0.3%	0.2%	2.2%	2.4%	3.0%
France	0.3%	0.1%	1.1%	-0.7%	2.0%
yes"> Excl Energy	0.2%	0.5%	2.2%	1.9%	2.8%
Italy	0.4%	0.0%	2.4%	0.2%	4.0%
yes"> Excl Energy	0.3%	0.6%	4.3%	3.0%	4.2%
UK	-0.8%	-1.4%	-6.7%	1.4%	-1.4%
yes"> Excl Energy	0.4%	0.5%	3.7%	3.1%	3.4%
Euro area 13 Harmonized PPI excl Construction.
The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain
6COLSPAN

Trend across categories and countries do not show a steadily accelerating inflation rate that central banks would clearly abhor. But they do show that pressures that had dissipated have re-emerged in the 3-month inflation rates. Excluding energy, inflation trends across the main countries show the same tendency except in Germany and in France where the pace of PPI ex-energy inflation is staying fairly constant, just above the 2% pace.

The headline inflation rate is moving steadily lower, but ex-energy inflation is considerably more stubborn around 3.5%, well above the ECB ceiling rate of 2% (for the HICP).

by:Robert Brusca

|in:Economy in Brief

Global| Apr 03 2007

Profitability of U.K. Private Nonfinancial Corporations at a Record High: Largely a Reflection of the [...]

NET PROFITABILITY OF PRIVATE NON FINANCIAL CORPORATIONS IN THE UK (%)	Q4 20 06	Q3 20 06	Q4 20 05	Q/Q Dif	Y/Y Dif	2006	2005	2004
All Corporations	15.5	15.2	14.3	0.3	1.2	15.1	14.3	14.2
Continental Shelf Corporations	33.5	37.3	40.6	-3.8	-7.1	40.7	34.1	25.1
Nonshelf Corporations	14.7	14.2	13.0	0.5	1.7	13.9	13.4	13.5
Manufacturing Corporations	10.0	6.9	9.9	3.1	0.1	8.5	9.3	9.7
Service Industry Corporations	20.9	19.5	17.9	1.4	3.0	19.7	17.9	17.4

Euro area and UK PPI Trends

	M/M		SAAR
Euro area 13	Feb-07	Jan-07	3-Mo	6-MO	Yr/Yr
Total (Excl Construction)	0.3%	0.2%	2.1%	0.2%	2.9%
yes"> Excl Energy	0.3%	0.5%	3.4%	2.7%	3.4%
Capital Goods	0.1%	0.5%	2.9%	2.3%	2.0%
Consumer Goods	0.2%	0.3%	2.4%	1.2%	1.6%
Intermediate & Capital Goods	0.3%	0.6%	3.9%	3.4%	4.4%
Energy	0.4%	-0.7%	-1.8%	-7.5%	1.0%
Manufacturing	0.4%	0.1%	2.3%	-0.4%	2.5%
Germany	0.3%	0.0%	1.0%	0.3%	2.8%
yes"> Excl Energy	0.3%	0.2%	2.2%	2.4%	3.0%
France	0.3%	0.1%	1.1%	-0.7%	2.0%
yes"> Excl Energy	0.2%	0.5%	2.2%	1.9%	2.8%
Italy	0.4%	0.0%	2.4%	0.2%	4.0%
yes"> Excl Energy	0.3%	0.6%	4.3%	3.0%	4.2%
UK	-0.8%	-1.4%	-6.7%	1.4%	-1.4%
yes"> Excl Energy	0.4%	0.5%	3.7%	3.1%	3.4%
Euro area 13 Harmonized PPI excl Construction.
The EA 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain
6COLSPAN

Euro Area and UK PPI Trends
by Robert Brusca April 3, 2007

The headline inflation rate is moving steadily lower, but ex-energy inflation is considerably more stubborn around 3.5%, well above the ECB ceiling rate of 2% (for the HICP).

by:Louise Curley

|in:Economy in Brief

Global| Apr 02 2007
Tankan Survey Shows Overall Confidence Holding Steady: Business Confidence Declines in Large Japanese [...]
Japan's Tankan released today showed that the headline large manufacturers' business condition DI (Diffusion Index) declined to 23% in March from 25% in December. These same firms forecast that the DI would decline further in June to [...]
by:Louise Curley
|in:Economy in Brief

Global| Apr 02 2007

A rose is a rose is a rose (Existentialism) Arroz es arroz es arroz (Rice is rice) MFG is MFG is MFG (The law of [...]

As you can tell from the chart on the left the sense of there being separate business cycles in the US and in Europe is a sort of joke. The US and Euro area manufacturing indexes are plotted on top of one another and their sense of co-variation is unmistakable. Also the US is shown to be the male and E-zone is the female; that is to say, if we regard this as a dance, the US leads.

In the recent mini-cycle, Europe has struck out a bit on its own. A US up-cycle from mid-2005 aborted early, turning to decline. Meanwhile, Europe has continued to expand and only recently has hit a plateau with hint of erosion. In the US, the down-cycle is only showing early signs of stabilization.

yes"> We wonder if Europe needs the US more than the US needs Europe?

The table above shows hath the E-zone readings, while off peak, are still very high in the range they have occupied since Mid-1997. The overall index is in the top 30% of its range and stands 6% above its average. Orders are similarly strong. Supplier deliveries are showing the weakest relative performance 10% below their average of the period.

Placing NTC Euro-Zone Readings in their Respective Ranges

	Since June'98
NTC E-zone	Current	Std Dev	Average	SD% Avg	MAX	MIN	Range	Percentile	% of AVG
NTC Index	55.4	3.8	52.5	7.3	60.5	42.9	17.5	71.1	106
New Orders	56.4	4.6	53.5	8.7	62.4	41.0	21.4	72.3	105
Backlogs	53.9	3.1	52.0	5.9	57.6	47.2	10.5	64.1	104
Production	57.4	4.2	54.2	7.7	62.8	43.0	19.9	72.8	106
Supplier Deliveries	42.5	4.8	47.2	10.1	56.9	34.7	22.2	35.1	90
Inventories	48.7	1.0	48.3	2.0	50.4	46.2	4.3	58.9	101
Prices (Pd)	66.1	9.8	59.7	16.4	76.5	37.7	38.8	73.3	111
Employment	52.9	2.9	49.8	5.8	56.0	44.2	11.8	73.9	106
New Export Orders	55.3	4.3	52.8	8.1	60.0	39.4	20.6	77.5	105
Note: From June 1997 to Date; except back logs since Nov '02

The leading components of the NTC E-zone index are showing mixed trends. We form these trends as the difference between the 3 month and six month indexes. Supplier deliveries and prices-paid are turning up while new orders and order backlog trends are eroding.

On balance, we can see the strong US-Europe linkages or commonalities. The history looks as though the US cycle gets transmitted to Europe, but Europe is recently showing some independent strength. However, it is also showing some sign of decay. It hardly seems as though a further rise in the Euro can do any good for Europe. But, so far so good.

by:Robert Brusca

|in:Economy in Brief

Global| Apr 02 2007
ISM: Better But Not Out of the Woods

The chart on the left shows the ISM clearly has broken through the up trend from its recession recovery and now is in a well-established downtrend. Its recent up-tick is still in the grip of that down-trending range. The table below shows the ISM and its components with a number of statistics that describe it/them. A quick perusal of the table shows why I like to evaluate the ISM by looking at the values in the LAST TWO columns instead of seeing if the index is above 50 (Rising) or below it (Falling). Each of these ISM components has a different range variability characteristic, range of values and mean. Even with the ISM above 50, as it is this month, it is still only in the 46^th percentile of its range and at 96% of mean.

Only inventories, prices and the trade-related components are above their mean values. Employment, at 99% of its mean, is nearly there.
So while the ISM indicates expansion in the lexicon of the ISM we can see it is indeed a still wounded report that shows manufacturing is not yet up to par.Commentary Archive

by:Robert Brusca
|in:Economy in Brief

Global| Apr 02 2007

ISM: Better But Not Out of the Woods

The chart on the left shows the ISM clearly has broken through the up trend from its recession recovery and now is in a well-established downtrend. Its recent up-tick is still in the grip of that down-trending range. The table below shows the ISM and its components with a number of statistics that describe it/them. A quick perusal of the table shows why I like to evaluate the ISM by looking at the values in the LAST TWO columns instead of seeing if the index is above 50 (Rising) or below it (Falling). Each of these ISM components has a different range variability characteristic, range of values and mean. Even with the ISM above 50, as it is this month, it is still only in the 46^th percentile of its range and at 96% of mean.

Only inventories, prices and the trade-related components are above their mean values. Employment, at 99% of its mean, is nearly there.

So while the ISM indicates expansion in the lexicon of the ISM we can see it is indeed a still wounded report that shows manufacturing is not yet up to par.

Placing ISM Readings in their Respective Ranges

	Since June 1998
ISM	Current	Std Dev	Average	SD%Avg	MAX	MIN	Range	Percentile	% of AVG
PM Index	50.9	5.3	53.2	10.0	63.2	40.5	22.7	45.8	96
New Orders	51.6	6.7	55.8	12.0	71.3	38.4	32.9	40.1	93
Backlogs	47.0	6.7	50.4	13.4	66.5	36.0	30.5	36.1	93
Production	53.0	6.3	55.7	11.4	70.0	38.6	31.4	45.9	95
Supplier Deliveries	51.3	5.0	54.2	9.2	68.1	45.4	22.7	26.0	95
Inventories	47.5	3.9	45.8	8.6	53.6	37.1	16.5	63.0	104
Prices (Pd)	65.5	12.6	62.1	20.3	88.0	32.0	56.0	59.8	105
Employment	48.7	5.9	49.3	12.0	60.3	35.1	25.2	54.0	99
New Export Orders	55.5	3.5	53.6	6.6	60.2	44.3	15.9	70.4	104
Import Orders	57.5	3.6	54.6	6.6	61.5	46.9	14.6	72.6	105
Avg Days Lead For:	Since June 1998
Production Material	45.0	3.2	47.1	6.9	55.0	38.0	17.0	41.2	96
Capital Expenditure	110.0	8.7	107.1	8.1	120.0	86.0	34.0	70.6	103
Maint., Repair, & Ops	22.0	2.1	22.5	9.5	29.0	17.0	12.0	41.7	98
Note: From April 1991 to Date; except back logs since Jan 1993

by:Robert Brusca

|in:Economy in Brief

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Nonmanufacturing ISM: Sharp Two-Month Drop Off

Profitability of U.K. Private Nonfinancial Corporations at a Record High: Largely a Reflection of the [...]

Euro Area and UK PPI Trends

Profitability of U.K. Private Nonfinancial Corporations at a Record High: Largely a Reflection of the [...]

Tankan Survey Shows Overall Confidence Holding Steady: Business Confidence Declines in Large Japanese [...]

A rose is a rose is a rose (Existentialism) Arroz es arroz es arroz (Rice is rice) MFG is MFG is MFG (The law of [...]

ISM: Better But Not Out of the Woods

ISM: Better But Not Out of the Woods