Japan’s capital spending survey suggests modest upwards revision to Q3 GDP; final manufacturing PMI revised higher, but car sales remain subdued
Ahead of next week’s updated Q3 Japanese national accounts figures (which typically reveal more substantive revisions from the preliminary release than in other major economies), the MoF’s survey of corporate financial statements published overnight provided further insight into private capex growth last quarter. In particular, the survey reported that business investment fell 1.1%Q/Q in Q3, with spending down 1.5%Q/Q in the manufacturing sector and by 0.9%Q/Q in the non-manufacturing sector. But having increased by a cumulative 4.3% in the previous two quarters, private sector capex was still up by more than 1%Y/Y, admittedly notably softer than the 5.3%Y/Y growth in Q2. The national accounts measure of capex spending in nominal terms declined a steeper 2.9%Q/Q in Q3. And the drop in real terms of 3.8%Q/Q knocked 0.6ppt off quarterly GDP growth. On balance, today’s release suggests that we might well see a modest upwards revision to private sector non-residential investment and hence a slightly smaller contraction in GDP in Q3 than initially estimated (-0.6%Q/Q).
Elsewhere in the survey, given pandemic-related restrictions and ongoing supply bottlenecks, manufacturers’ sales in Q3 fell for the first quarter in five (-1.1%Q/Q). The drop in non-manufacturers’ sales was much smaller (-0.1%Q/Q), although this marked the third consecutive decline. Overall, sales were down 0.4%Q/Q, while profits fell a steeper 7.4%Q/Q with weakness across the manufacturing and non-manufacturing sectors alike. Of course, with the state of emergency having been lifted and yesterday’s production data reporting a return to growth in October, the near-term outlook for Japan’s corporate sector should be more encouraging.
Certainly, the final manufacturing PMIs signalled a notably more upbeat assessment of conditions in November. In particular, the output PMI was upwardly revised from the flash estimate by 0.5pt to 54.0, the strongest reading since April, with the new orders component similarly up to a seven-month high of 52.9, and the employment PMI implying the strongest jobs growth since April 2019. But manufacturers also cited that persistent supply chain disruption has pushed input costs to their highest in thirteen years – indeed, the input price PMI rose to 72.3. But while the output price PMI (56.1) remained close to the thirteen-year high recorded in October, the survey again suggested that manufacturers continue to largely absorb these higher cost burdens.
With auto production still well down on its pre-pandemic level (more than 40%) on supply constraints, it is perhaps not surprising that Japanese vehicle sales remain subdued. While a softer pace of decline than in the previous two months, sales were down 13.8%Y/Y in November at 189k units, the lowest reading for that month since 2010. Indeed, when compared with 2018 (to exclude the impacts of the consumption tax hike and pandemic), car sales were down by 21.6% in November. Despite the particularly low base in 2020, cumulative sales in the eleven months to November were down by 1.5% (and down 15%YTD when compared with the equivalent period in 2018).
Chinese PMIs beat expectations with output firmer and price pressures easing
At face value, the findings of China’s Caixin manufacturing PMIs, released today, appeared to contradict the findings of the official PMIs released earlier in the week. Indeed, contrasting with the rise above 50 in the official headline manufacturing PMI for the first time in three months (admittedly just to 50.1), the equivalent index from the Caixin survey – which is focused more on smaller private sector firms – fell back in November to below 50 for the first time since August. However, the drop of just 0.7ppt left it at 49.9, consistent with broad stability in the sector and little different from the official index. Moreover, the Caixin manufacturing output index rose 1.3pts last month to a four-month high of 50.1, to suggest improved production thanks not least to an easing of power restrictions. And, like the official survey, the Caixin PMIs suggested an easing of supply bottlenecks (e.g. with an improvement in delivery times) and a marked moderation of price pressures. The Caixin input cost PMI plunged 12.8pts from the prior month’s five-year high to a 13-month low of 52.3. And the output price PMI fell 7.5pts to just 50.7. Less encouragingly, despite a pickup in new export orders, the Caixin survey signalled a modest decline in new orders overall, suggesting that the near-term production outlook is likely to remain subdued.
German real retail sales down in October, likely to drop over Q4 as a whole; French car registrations mark weakest November since 1974
Yesterday’s data from France and Spain suggested that consumer spending on goods in both countries was relatively subdued in October. And today’s figures from Germany did likewise, with real retail sales falling 0.3%M/M at the start of Q4, contrary to an expected rise, to be down 2.9%Y/Y. That followed a revised drop of 1.9%M/M in September. So, while real retail sales were still 3.5% above the pre-pandemic level in October, they were down 1.1% from the Q3 average. The weakness in sales in October was centred in food and related items, which fell 0.7%M/M to be 4.1% below the pre-pandemic level. But sales of non-food items rose 0.6%M/M to be 7.0% above the pre-pandemic level. Given the intensification of the pandemic, and the tightening of restrictions – which seek to prevent access of the unvaccinated to hospitality and non-essential stores in many regions and might soon be extended nationwide – sales of food items might well pick-up over the near term, but total sales look set to decline over Q4 as a whole. Certainly, mobility data point to a decline in spending on both retail and recreation activity. Of course, higher prices are also eroding sales in real terms, with nominal retail sales rising 0.2%M/M in October in contrast to the decline in real terms.
Despite the extremely low base last year as the second pandemic wave took hold, November’s new car registration numbers will remain weak due not least to persistent supply bottlenecks. Admittedly, the French numbers just released suggested a notably softer pace of annual decline, with sales down just 3.2%Y/Y following a drop of 30.7%Y/Y in October. But this still marked the weakest November for new registrations since 1974. And compared with 2019, sales were still almost 30% lower in November. So, while sales in the first eleven months of 2021 were 2½%YTD/Y higher than in 2020, they were still roughly one quarter lower than the equivalent period in 2019. Italian and Spanish car registration numbers are due later today.
Final November manufacturing PMIs from the euro area and member states are also due this morning. While the preliminary release reported the headline euro area PMI index rising for the first month in five, by 0.3pt to 58.6, this might well be revised lower on the back of the resurgence of coronavirus cases and reintroduction of certain restrictions across member states.
UK high-street inflation highest in 2½ years, with house price inflation up too
While competition on the UK High Street has remained intense over recent years, today’s BRC shop price survey signalled increasing price pressures on the High Street in the run up to Christmas. In particular, the headline shop price index was up 0.3%Y/Y in November, suggesting the first year-on-year increase in prices for 2½ years. This reflected a faster pace of retail food price inflation (up 0.6ppt to 1.1%Y/Y) to the highest for a year, as well as a notably softer pace of non-food price deflation – indeed, the survey measure of non-food prices was down just 0.1%Y/Y, the smallest decline since May 2019. Meanwhile, despite some slowing in housing market activity since the conclusion of the government’s Stamp Duty holiday at the end of September, the latest Nationwide house price data suggested that house prices maintained a steady upwards trend in November, rising by a larger-than-expected 0.9%M/M to leave them 10.0% higher than a year earlier and almost 15% above the pre-pandemic level.
Looking ahead, the final UK manufacturing PMIs are also due today. The flash estimates showed the headline PMI rising 0.4pt to 58.2, a three-month high, with the output index up for the first month in six and price pressures at a series high.
US manufacturing ISM indices to point to ongoing firm growth but still-intense price pressures; ADP to give guide to Friday’s payrolls report
In the US, a busy day for economic releases includes the manufacturing ISM survey and Fed Beige Book. The headline ISM index is forecast to remain close to the 60.8 mark recorded in October with the detail to report solid growth in production but still intense price pressures and notable supply constraints. (The flash Markit PMIs saw the headline index rise 0.7pt to 59.1.) Meanwhile, against the backdrop of some softer single-family housing starts numbers, the latest construction spending figures are likely to show that activity moved broadly sideways in October. The latest vehicle sales numbers for November are also due, while the private sector ADP employment report will provide a guide to Friday’s more comprehensive payrolls report. Beyond the data, Fed Chair Powell will be back in Congress.