Same rake… again?

June 3-9, 2023

Big news. By analogy with the previous week, eurozone GDP -0.1% qoq. That is, the 2nd minus in a row, there is a “technical recession”:

Euro Area GDP Growth Rate
Pic. 1

In other words, contrary to all the stories in various kinds of “expert” sources that say that the situation is changing for the better, even the official data does not show this. In reality, as we remember, industrial inflation is seriously underestimated in those sectors where it exists today, so the real economic downturn is much higher.

Macroeconomics. Dutch manufacturing output -12.1% pa – 14-year low:

Netherlands Manufacturing Production
Pic. 2

Industrial production in Italy -7.2% per year – excluding the failure of 2020, this is a 10-year bottom:

Italy Industrial Production
Pic. 3

Orders in the US industry (without transport) -0.2% per month – 3rd negative in a row and 5th in 6 months:

United States Factory Orders Ex Transportation
Pic. 4

In Germany -0.4% per month – although a month earlier there were record -10.9% for almost half a century (excluding 2020):

Germany Factory Orders
Pic. 5

And -9.9% per year — the 14th negative in a row:

 Germany Factory Orders n.s.a. (YoY)
Pic. 6

As we have repeatedly noted, during a structural crisis, after a sharp decline in a particular industry, there comes a time of relative stability, during which there may even be a slight increase. The downturn is spilling over to other industries. And if you don’t focus on these moments of the decline, then there is a feeling that everything is fine, there is a slight increase, there … So it is in Germany – after a sharp decline in the industry, the situation seems to have settled down and for several months the indicators will be quite tolerable. But the recession will erupt somewhere else.

PMI (an expert index describing the state of the industry; its value below 50 means stagnation and recession) of the US service sector is minimal for 5 months and is in the stagnation zone (50.3):

United States ISM Services PMI
Pic. 7

Its key component of business activity is the worst in 3 years, and without taking into account the failure of 2020, in 14 years:

United States ISM Services Business Activity
Pic. 8

The US trade deficit is the largest in six months:

United States Balance of Trade
Pic. 9

We have previously drawn attention to this circumstance: cheap Chinese imports compensate for the drop in living standards for households.

Building permits in Australia are the lowest in 11 years:

Building Approvals, Australia
Pic. 10

House prices in Britain -1.0% per year – the weakest figure in 11 years:

United Kingdom House Price Index YoY
Pic. 11

And the mortgage rate there is the highest in almost 16 years (7.44%):

United Kingdom BBA Mortgage Rate
Pic. 12

In the US, the latter slightly decreased (6.81% instead of 6.91%):

United States MBA 30-Yr Mortgage Rate
Pic. 13

What did not prevent loan applications from falling for the 4th week in a row:

United States MBA Mortgage Applications
Pic. 14

Inflation estimate in Australia from the Melbourne Institute jumped to a semi-annual peak of +0.9% per month:

Australia Melbourne Institute Inflation Gauge MoM
Pic. 15

CPI (Consumer Inflation Index) China -0.2% per month – 4th negative in a row:

China Inflation Rate MoM
Pic. 16

PPI (industrial inflation index) China -4.6% per year – at least for more than 7 years:

China Producer Prices Change
Pic. 17

This is deflation in its purest form, a sign of a serious economic downturn.

Eurozone PPI -3.2% per year – anti-record for 28 years of observations:

Euro Area Producer Price Inflation MoM
Pic. 18

There seems to be deflation here too. But then the picture of the economic downturn is clear: the PPI index describes the prices for final goods in technological chains. If final prices fall, then assembly plants actively reduce purchases, this goes down the chains and a clear decline begins.

The number of initial claims for unemployment benefits in the United States in a maximum of 20 months:

United States Initial Jobless Claims
Pic. 19

Canada Unemployment Rate Highest in 10 Months:

Canada Unemployment Rate
Pic. 20

The volume of retail sales in the euro area did not change on a monthly basis – the 3rd month in a row in zero or minus:

Euro Area Retail Sales MoM
Pic. 21

And -2.6% per year – the 7th negative in a row and the 10th in the last 11 months:

Euro Area Retail Sales YoY
Pic. 22

Household spending in Japan -1.3% per month – 3rd negative in a row and 5th in the last 6 months:

Japan Household Spending MoM
Pic. 23

And -4.4% per year – the worst dynamics in 2 years:

Japan Household Spending YoY
Pic. 24

The Central Bank of Australia raised the rate by 0.25% to 4.10%, contrary to the expectations of a pause. The increase in the rate of the Central Bank of Canada was also a surprise – by 0.25% to 4.75%, this is the peak percentage since 2001. But the Central Bank of India did not change anything.

Main conclusions. Information has come confirming the logic of the beginning of the industrialization of the United States. For starters, data on construction spending on industrial infrastructure:

U.S. construction spending (industrial infrastructure), $ mln YoY
Pic. 25

Once again I draw your attention: this is an industrial infrastructure!

The same indicator on the other hand:

Quoting Pavel Ryabov (Spydell): “Active industrialization in the USA. There is an industrial infrastructure construction boom in the United States unprecedented in modern history. Since February 2021, spending on the construction of industrial infrastructure has grown 2.6 times, which is the most powerful infrastructure boost in at least 30 years.

In the USA, there were two cycles of capital expenditures on industrial infrastructure – from July 2004 to February 2009 (4.5 years) – an increase of 3.3 times and from February 2011 to June 2015 (almost 3.5 years) – an increase of 2.9 times. This time, the expansion cycle is faster and more ambitious.

US construction spending (industrial infrastructure), % of total non-residential construction
Pic. 26

Construction costs in the Census classification include the cost of labor and materials, architectural and engineering work, overheads, interest and taxes paid during construction, and the contractor’s profit.

Industrial infrastructure includes all buildings and structures at production sites, but does not include the integration of non-stationary industrial equipment and production debugging, while fixed equipment is taken into account. Office buildings and warehouses owned by manufacturing companies, but not built on a production site, are classified as “office” and “commercial” respectively.

Spending on industrial infrastructure as a share of non-residential construction by the private sector has risen to 29%, almost twice as high as in 2020. In relative comparison to the total volume of construction, the priorities and phases of industrialization / de-industrialization are visible.”

Of course, this is only the beginning, and it will be possible to say how effective this work will be only in a few years. But I recommend comparing the situation with Western Europe. At the same time, of course, the situation in the US economy is not improving yet:

Pic. 27

After being allowed to borrow money, the debt began to skyrocket. However, it is not the debt itself that is dangerous, but the scale of support for the economy, which should grow rapidly. And there are simply no resources for it. In other words, it is possible that attempts at industrialization will meet with a recession that has already begun – and, most likely, the battlefield will remain precisely behind the recession.

And if we take into account the outflow of deposits from American banks, the picture becomes even more alarming:

Pic. 28

Since against the backdrop of how the Treasury is sweeping all available liquidity from the market, banks need to somehow maintain their own financial performance. And if they start raising deposit rates, the cost of loans will also increase. That is, a new wave of economic recession is ahead …

In general, the picture looks quite alarming, despite the appointment of summer. Let’s see what the next week will show us, whether the Fed will take the risk of raising the rate … In the meantime, we wish our readers to have a good weekend and not worry too much in the upcoming working week!


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