Money & Cycles Weekly Bulletin
Manufacturing recovery hopes are premature
December 4, 2023 by Simon Ward
PMI orders upticks probably temporary. Global PMI and ISM manufacturing new orders indices rose in November but remain sub-50, with monetary trends and likely resumption of a stockbuilding downswing suggesting further weakness (see charts).
US / Eurozone core inflation well below central bank forecasts. The latest year-on-year readings are 0.25 pp and 0.5 pp beneath FOMC and ECB Q4 projections made as recently as September (see charts).
Weak US Q3 income growth. Income-based GDP again lagged the headline expenditure measure significantly in Q3, with a fall in real operating profits suggesting downside risk to business capex (see charts).
Eurozone / UK broad money / bank lending stagnant. Medium-term deflation risk is rising as monetary weakness extends (see charts).
PMI orders upticks probably temporary
Global manufacturing PMI new orders rose for a fourth month, while ISM new orders rebounded
Hopes that manufacturing has turned the corner contributed to further outperformance of DM cyclical sectors – but EM cyclicals still aren’t confirming
The November rise in global manufacturing PMI new orders partly reflected a rebound in China – but the official Chinese PMI survey weakened further
The US ISM new orders uptick was probably due to an auto strike effect, while breadth deteriorated
Only 2 out of 18 industries reported rising orders, the smallest number since January.
Orders have been supported by an interruption of the downswing in stockbuilding – but a further decline is likely
Global six-month real narrow money momentum made a new low in September, suggesting PMI weakness into c.end-Q1
Real money momentum recovered in October – was September the bottom?
The October rise in real money momentum was driven by the US
The US recovery suggests less bad economic prospects for later in 2024 but doesn’t imply a reduced risk of a near-term hard landing
Real money momentum often bottoms before or at the start of hard landings / recessions. Why? Recessions are triggered by a shift from spending to saving, with the latter reflected in accumulation of liquid assets.
US / Eurozone core inflation well below central bank forecasts
US annual core PCE inflation is on course to be 3.3-3.4% in Q4 vs. a FOMC median forecast of 3.7% in September.
Eurozone annual core CPI inflation is on course to be 3.7-3.8% in Q4 vs. an ECB staff forecast of 4.1% in September
Weak US Q3 income growth
US six-month core PCE inflation slowed further to 2.5% annualised
The income-based US GDP measure continues to suggest a much softer economy than the headline expenditure-based series
From the income side, real operating profits have fallen over the past year, suggesting weak prospects for business capex
Forward-looking orders responses in regional Fed manufacturing surveys weakened further last month
The Chinese NBS non-manufacturing PMI survey remained weak
S&P Global / Caixin survey tomorrow.
The NBS manufacturing PMI output price index remained below 50
Chinese competition will continue to drag on global pricing power.
Eurozone / UK broad money / bank lending stagnant
Eurozone six-month headline / core CPI momentum continues to track an earlier broad money slowdown
6m core down to 2.3% annualised.
Unemployment is on a rising trend
Three-month broad money / bank lending growth has stabilised at c.zero
Ditto in the UK, suggesting weak economic prospects and rising medium-term deflation risk
Indian GDP grew by 7.6% year-on-year in Q3 but is still lagging China since before the pandemic
Real growth has recently been boosted by a suspiciously weak deflator