June 15-21, 2024
Big news. Industrial production in the United States jumped sharply in May. With the April figure at 0% and a forecast of 0.2% in May compared to April, the official figures turned out to be 0.9%.
Рис. 1
This means growth even taking into account real inflation, which, according to our estimates and Larry Summers’ estimates, is 10% per year. As can be seen from the graph, such bursts do occur and they do not mean annual growth at all, as can be seen from the corresponding graph:
Рис. 2
But at the same time, the annual result jumped out into positive territory, although only at the official inflation rate. Based on reality, the picture remains the same, with an average 0.5% drop per month. Details will be in the last section of the Review.
Macroeconomics. Let’s get back to watching China. We remind you that the official data there is extremely creative and you need to look not so much at specific numbers, but at how they relate to each other. Well, and their relative changes.
In this sense, Chinese data as a whole are again not encouraging.
Foreign direct investment -28.2% per year, in the entire history it was worse only once (in January 2009 -32.6%):
Рис. 3
Investments in fixed assets slowed down to +4.0% per year, monthly dynamics remain negative:
Рис. 4
Industrial production is also slowing down:
Рис. 5
Retail accelerated slightly, but only in comparison with record lows (minus Covid) a month earlier:
Рис. 6
New building prices -3.9% per year, 9-year minimum:
Рис. 7
However, the Central Bank of China continues to pump liquidity out of the financial system through a system of annual loans:
Рис. 8
Which, as is clear, indicates the threat of inflation. However, taking into account the volume of internal economic stimulation, this threat operates continuously in China.
PMI (expert index of the state of the industry; its value below 50 means stagnation and decline) of the eurozone industry 45.6, semi-annual bottom:
Рис. 9
New Zealand Services PMI 43.0.Not counting Covid, this is an anti-record (even in 2008/09 it was better):
Рис. 10
In Japan 49.8, 2-year minimum:
Рис. 11
Manufacturing activity in the New York Fed zone has been in the red for 7 months in a row:
Рис. 12
US building permits hit 4-year low:
Рис. 13
The number of new buildings has the same minimum:
Рис. 14
Average salary in the eurozone +5.3% per year, repeating the record pace for 15.5 years of data collection:
Рис. 15
This is not positive news, it means that easing monetary policy (let me remind you, the ECB cut the rate last week) is accelerating inflation processes.
4-week average of US initial jobless claims at 9.5-month peak:
Рис. 16
And the total number of recipients of such benefits updated the top over 2.5 years:
Рис. 17
The number of job postings in Australia has fallen for 4 months in a row:
Рис. 18
The Swiss Central Bank cut the rate by 0.25% for the second time in a row, to 1.25%:
Рис. 19
The Chinese Central Bank left its key rate at a record low of 3.45%.
The Bank of England percentage remains unchanged, but 2 out of 9 board members vote for its reduction.
The Central Bank of Australia has not changed anything in its monetary policy, as have the Central Banks of Brazil, Indonesia and Norway.
Main conclusions. As promised above, Pavel Ryabov’s comments on the growth of US industry.
“Good data on US industrial production in May should not be confusing; stagnation still continues.
The declared growth of industrial production by 0.85% m/m is a consequence of a revision for the worse by 0.3% of the data in March-April 2024 (underestimation of the base), and in relation to last year the growth is within the margin of error (+0.4% y/y).
The beginning of the year remains quite weak, from January to May 2024 industrial production decreased by 0.3% y/y, increased by 0.4% by 2022, but minus 0.2% by 2019 over the same period of time – flickering near zero without a pronounced trend.
If we put the comparison into perspective for 10 years, the growth is only 1% and +3.2% compared to 2008.
This is already the fourth peak (production ceiling) that has not been broken through. During this time, there were three crises, where in 2008-2009 the accumulated decline was almost 17.3%, in 2015-2016 there was a decrease of 5.5%, and in 2019-2020 the collapse was 18.7% in the moment.
In 2022–2024, a decline of more than 3% from the local maximum was not observed, but there was no growth either, so the trend cannot be classified as a recession, which implies a directed low-intensive decline. The statement about three-year stagnation and, in broad terms, about 15-year stagnation is true.
As for the industry sector, the trend of active closure/withdrawal/reduction of low-profit and low-margin production continues.
For example, the production of clothing and footwear collapsed by 14.6% y/y in January-May24, textiles fell by 4.6%, publishing activity fell by 3.2%, the production of furniture, garden supplies fell by 7%, and primary building materials (glass, concrete, sand, etc.) – 6.8%, which signals problems in construction and real estate.
The best growth rates have been demonstrated by knowledge-intensive segments since the beginning of the year: computers and microelectronics – 5.3%, aerospace production and transport excluding cars – 4.4%, cars – 3.6%. Plus, oil refining and electricity production are growing within 3%.”
Another interesting point concerns retail sales in the United States. It is not included in macroeconomic data because the official figures do not seem to provide anything new. But their analysis, on the contrary, shows a very interesting picture.
“Devastating US retail sales data…
It is reported that retail sales increased by 0.1% m/m, but, firstly, the data for April was revised downwards by 0.4%, and the March data by minus 0.2%, and secondly, since March there has been a clear “absorption” an upward trend in retail with a transition to recession, i.e. three months of very bad data.
Retail sales form a third of US consumer demand and over 22% of GDP, i.e. data matters. Consumer demand (goods and services) provides 68% of GDP and has accounted for approximately 70% of GDP growth since Dec.21.
However, in 10 of the last 10 crises and recessions in the United States, retail sales slowed faster but also recovered faster compared to consumer services, which are more inert. Technically services provide sustainability, but retail sales show direction, so are there any signals there?
From January to May 2024, retail sales grew by 2.2% y/y at par and without changes taking into account inflation, for two years +6.1% (+2.6% in real terms), for three years +17.6% (+12.5%), and compared to 2019, a significant nominal increase of 38.4%, and taking into account inflation +14.3%.
From 2010 to 2019, the long-term growth rate was 4.1% per annum, from Feb.20 to May.24 growth slowed slightly to 3.7% per annum due to faster consumption in 2020-2021, while in two years (May.24/May.22) growth on average 1.6% per annum.
What is the defeat? The 2.6% increase in retail sales for the year in Jan-May.24 to Jan-May.23 was ensured due to the positive contribution of Jun-Dec.23, while if we compare Jan-May.24 with Dec.23 the nominal growth is within 0%, and taking into account inflation minus 0.8%.
Since 1993, there have only been 6 times, not counting 2024, when in the first 5 months of the new year real retail sales were in the red relative to December last year, and a drop of 0.8% or worse was only twice – in 2008 (-1%) and 2020 ( -5.7%).
The main driver of growth in the US economy is steadily heading towards a recession, and then a crisis is nearby.”
In other words, US statistical agencies began to actively use the technique of deteriorating old data to demonstrate current positive trends. This, by the way, is also a very indicative trend, which does not mean anything good.
Let us also note that the word “recession” is completely inappropriate to describe reality; the United States has been experiencing a structural crisis for almost three years now, with a decline rate of approximately 0.5%. We have repeatedly described its mechanism and shown how the real performance of the US economy can be assessed.
Pavel Ryabov’s data is presented here to illustrate how sometimes difficult it is to interpret statistical data. For the overall picture, the official data that we provide in the second section of each review is sufficient. But for those who are interested, here is a link to his assessment of the scale of the stock bubble in the US: https://t.me/spydell_finance/5579?single. But people prone to panic attacks should not watch this material.
In general, we wish our readers a relaxing weekend and a successful working week. But don’t forget that you have to rely on God, but still keep your gunpowder dry!