Money supply growth remains steady. Credit growth has quickened a touch from April but overall there isn’t much evidence that the governments stimulus efforts have opened the credit spigots, particularly the private sector. Debt is growing a little faster than GDP again, but not markedly.
Macro Category
Modest improvement in the UK wages story. But it still appears that nominal gains are topping out with data flattered by the number of hours worked (at 32.2 vs. 31.8 in the same period a year ago). The stabilisation in nominal growth rates is not necessarily bad news for consumption given that inflation also looks to be moderating again, certainly at the headline level.
China recorded a larger than expected trade surplus in May, but mainly due to weakness on the import side rather than any underlying improvement in export performance.
Mirroring the weak ADP figure the May payrolls numbers also surprised on the downside. Revisions also downward, which also showed up in ADP’s release. The participation rate was stable, as was the unemployment rate. Hourly earnings were a little softer than expected and hours worked were flat at 34.4, which is down versus a year ago, dampening gains in weekly wage growth.
April turned out to be another poor month for German industry with the decline in overall industrial production fairly modest compared to the drop on the manufacturing side, where output dropped 2.5% on the month leaving output down 3.4% y/y.
For those sensitive to bad data its not a good update. The May ADP report saw job growth slump to a meagre +27.3k jobs, the weakest outturn since March 2010. Some sectors seem to have been hit by temporary factors, with the decline in construction particularly notable. But while this sector can ebb and flow you still have to go back to the end of 2010 to get a worse reading.
Eurozone putting together some better credit figures in April (once adjusting for sales and securitisations) amid strong growth in non-financial corporate borrowing in Germany and consistently strong credit demand (at both a corporate and consumer level) in France. This growth has more than offset ongoing weakness in Italy, where NFC lending continues to contract rapidly.
While there was some deceleration in retail sales growth m/m in April the numbers still bettered consensus and looking at the y/y rates activity still looks solid. We’ve actually been in this growth range (4-6% ann. value) for pretty much the entire Brexit period, while volumes have increased more recently, after the initial hit from post-referendum inflation.
While the headline rate pushed up and there was a move higher in services, core inflationary pressures looked relatively stable in April. Future pressures look equally contained, in part reflected in steady PPI output prices. Sterling has been weakening but the rate of decline has, thus far, has been fairly measured
First quarter real Japanese GDP registered a surprise expansion. But digging below the surface and there isn’t that much to get excited about. Underlying demand remains weak both in terms of household spending and government. It was left to net exports – where imports declined at a faster rate than weak exports – and a further and faster inventory build to provide the statistical boost.
Eurozone April inflation matched the increase the market was expecting, notably core which now stands at its highest level in 43 months. But this really flatters the overall picture given the increase in package holiday prices (notably in Germany) which lifted the recreation component of core this month, alongside an overall uptick in corresponding services.
A weak industrial production number and even bleaker manufacturing figures, which leave the y/y rate in negative territory for the first time since December 2016 (and the last China crisis!) On the manufacturing side non-durables look weak while autos within the durables continue to drag with auto production running around -4.4% y/y now, maintain the negative streak from the start of the year.
Retails sales report again providing some volatility with sales weakening following the very strong March rebound. But the overall picture is still not that bad. The y/y rate might have dipped a little but we’re still clear of the low we touched in December. The trend since then is still easy to label as ‘recovering’.
The improvement we saw in the headline activity numbers in March proved short lived with both industrial production and retail sales taking a renewed dive in April. Auto sector weakness was notably pronounced. Passenger car unit sales are down some 11% from the June 2018 peak, which is unprecedented in a developing economy with a reported growth rate as that of China.
Modest downside surprise on both headline and core but not really anything material. Underlying inflationary pressure remains well contained with the recent rebound driven largely by shelter. Ex-ing that out and inflationary pressures look even more contained.
March output data was strong on the manufacturing side, amid inventory building ahead of the (since extended) end-March Brexit deadline. Construction and services ended the quarter on a weak note, leading to an overall dip in GDP in the final month of Q1.
Underlying money supply growth remains weak, reflected in M2’s shrinking share relative to GDP. But the credit multipliers do look better, with some upward momentum suggesting that efforts to spur lending have been working, and the right type of lending as seen by the ongoing contraction of borrowing from the shadow banking sectors.
This morning completed the March industrial production and orders reports for Germany. Although the m/m bounce in industrial production extended, the prior month’s downward revision took some of the gloss off this and the y/y comparison still looks gloomy.
Now the Chinese New Year effects have washed through we’re getting a cleaner picture of what underlying trade growth in China looks like. While the April figures disappointed, exports back in negative territory y/y, over the first four months of the year as a whole the export figures are still marginally ahead of where they were in 2018, while imports are down around 2.5%.
A very strong Q1 non-farm productivity report, partly flattered by a surprisingly soft unit labour costs number. Obviously, GDP growth has been strong, and with employment growth running at a consistent weight the implication is that productivity had to have accelerated. But there are some other distortions within the mix.
