The ISM manufacturing survey for December was a shocker. The headline index fell to 32.4 from 36.2 in November and compares to expectations for a more moderate decline to 35.4. Since World War 2, the index has been lower only during the 1980, (29.4), the 1974 (30.9) and the 1949 (31.3) recessions. If the calculation of the index hadn’t changed (weightings of the sub-indices) the headline ISM would have been below 30. The details painted an even weaker picture. New orders dropped to 22.7, the lowest since 1949, production fell to 25.5 (levels last seen in 1980), unemployment sank to 29.9, lowest since 1982 and backlog of orders dived to 23, the lowest since the series began in 1993. Overall, the report suggests that still weaker readings will be registered in the months ahead, confirming our expectation that the current recession will be the most severe at least since World War 2. The weakness of the ISM will later be mirrored in the industrial production and the non-manufacturing ISM. The prices paid index fell to 18, the lowest since 1949. The optimists will see this as a positive development as it may allow firms to lower their prices supporting consumption. Pessimists will see it as a sign that deflation is arriving convincing households to keep their wallets closed.
EMU: Manufacturing PMI drops further
The final December PMI report on manufacturing showed a further deterioration of the situation in the second half of December. Indeed, the headline PMI index dropped to 32.7 from a preliminary 34.5, indicating that the survey responses received after the cut-off date for the preliminary report were worse that those included in that preliminary report. The geographical split showed minor divergences though. Compared to the preliminary report, the German and French results deteriorated the former to 32.7 from 33.5, the latter to 34.9 from 35.9. The Italian headline PMI index improved though to 35.5 from 34.9. Looking to the EMU PMI report, the headline figure marked an 11-year survey low and suggests a contraction in activity for the seventh consecutive month. The details were also exceptional weak, especially new orders and employment. The EMU economy entered 2009 incredible weak with no signs of a reviving momentum. Without doubt, Q4 GDP will again be negative and more so than the 0.2% Q/Q declines registered in Q2 and Q3. No improvement is on the horizon. The EMU recession is still deepening and might turn out quite prolonged too. On the positive side, the PMI survey shows that price pressures are receding.
Other: UK PMI slightly up in December, but other data remain disconcerting
The situation in the UK manufacturing sector didn’t deteriorate much further in December. Indeed, the headline index showed a slight increase to 34.9 from the all-time low of 34.5 in November, suggesting that while the sector still contracts, it happens at a slightly slower pace, but this should bring little solace. The employment index dropped to 33.6, the lowest since the series began in 1992 and a bad omen for consumption. Price pressures are receding as output prices fall for the first time since mid 2005 and input prices for the second month.
UK Mortgage approvals dropped in November to an all-time low of 27 000 (series started in January 1999) from a slightly downwardly revised 31 000 in October. Consensus was looking for an unchanged reading. Consumer credit stabilized in November at £0.8 billion, which was above the expectation for a £0.6 billion rise. Net secured lending on dwellings amounted to £0.7 billion in November, up from £0.5 billion in October (which was also the consensus estimate). HBOS house prices dropped by 2.2% and 16.2% Y/Y in December, down from 14.9% Y/Y in November. The annual decline was the steepest since the index was launched in 1983.
The BOE Q4 credit conditions survey showed a reduced availability of secured credit to households amid concerns about house prices and the eco outlook. The survey also showed widening of spreads on corporate lending that was expected to increase further. The survey is a disappointment for the government as the capital injection in Britain’s biggest banks and the guarantees offered was apparently not enough to encourage them to lend.
