US: The NY empire strikes back!, but suspicion that it is build on loose sand
The November NY Fed survey on manufacturing surprised friend and foe as it suggest a sharp acceleration on activity in the manufacturing sector in the NY area. The headline, general business conditions, index rose to 26.66 from 22.92 in October, the highest figure since June (29.01). The sub-indices that aren’t compiled into the headline index as is the case with the ISM or some other surveys, fully confirmed the rosy picture. Indeed, new orders rose to 22.38 (from 11.75), shipments to 26.63 (from 22.54), unfilled orders to 10.24 (from –1.51) and also the delivery time and inventories improved. The labour market indices were really strong. The number of employees index rose to 24.50 (from 19.39) and the average workweek remained firm at 12.64 (though down slightly from 14.44). The price indices were mixed, the prices paid up (34.90) but the prices received down (16.98). Also the 6-month outlook indices were firm. Already in October the headline index was very strong, but then the sub-indices didn’t confirm the strength and in October all other manufacturing surveys showed more weakness. Will this be again the case in November or is the NY survey simply leading other measures of manufacturing sentiment? One factor that might have played a role is the seasonal adjustment factors that are very generous for November. The results are so much at odds with other evidence from the sector (eg. Manufacturing payrolls that plunged in October) that we only can imagine that they don’t represent a good picture of the underlying picture in the whole of the country.
EMU:
EMU industrial production fell in September by 1% M/M (consensus –0.3% M/M) to be up 3.3% Y/Y. In August, production rose by 1.7% M/M and 5.5% Y/Y, really strong. The data are outdated and shouldn’t be considered as a major concern. In Q3 production still increased 0.9% Q/Q, slightly down from Q1 1.1% Q/Q and Q2 1.2% Q/Q, but nevertheless strong. It is nevertheless one more piece of evidence that the peak of the cycle is situated in Q2.
OTHER NEWS:
In the UK, the labour market report showed earnings growth moderating, while unemployment continues to rise. The jobless claims rose 1.2K in October and are up 70.1K on the year resulting in a rise of the unemployment rate from 5.5% to 5.6%. Employment on the other hand also increased by 56K over the quarter and 192K over the year. High net inward migration is still seen as the main driver behind this unusual development. At the same time, earnings growth remains subdued with both indices including and excluding bonuses moderating. This is a rather reassuring development for the Bank of England that inflationary pressures stemming from the labour market will remain largely absent. However, rumours about high financial bonuses, a large increase in the National Minimum Wage and high CPI and RPI rates ahead of the pay settlement round will keep the bank alert.
The November Bank of England inflation report showed inflation returning back a little more rapidly to target than in August. The growth outlook is however slightly stronger than that contained in the August report. The risks to both growth and inflation are broadly balanced, but the MPC noted that there is still a greater-than-usual uncertainty over the outlook for inflation. Given that the inflation rate is still likely to rise in the near term and as such expected to remain above the target for much of the forecast period and given the solid growth expectations, it is too early to conclude firmly that the Bank of England is done.
