Japan survey confirmed solid investment growth

Chris Scicluna
Emily Nicol

Capex spending rises for fourth consecutive quarter, but unlikely to lift Q3 GDP estimate
The headline figures from today’s Japanese capital spending survey beat expectations, with the annual rate of capex growth more than doubling to 9.8%Y/Y in Q3. When excluding spending of software – the measure that more closely aligns with the national accounts investment figure – growth accelerated 4.5ppts to 8.0%Y/Y. When also adjusting for seasonal effects, capex was up 2.7%Q/Q, bang in line with nominal fixed investment growth in the first estimate of Q3 GDP, suggesting that a significant upwards shift to overall GDP growth (-0.3%Q’Q) seems unlikely. The detail of the report was hardly suggestive of a near-term surge in fixed investment too, with firms reporting a drop in profits of more than 5%Q/Q despite another quarter of modest increase in sales (0.8%Q/Q).

Consumer confidence slumps to weakest since June 2020, with purchase intentions at a series low
Today’s Japanese consumer survey also offered a downbeat assessment for near-term consumption growth. Contrasting with expectations, the headline sentiment index fell for the fifth month out of the past six in November, by 1.3pts to 28.6, the weakest since June 2020, almost 10pts below the level a year ago and trending almost 2pts below the Q3 average. The deterioration was broad based, with households more downbeat about expected jobs growth since May 2021, with income expectations the lowest for almost two years. As such, the survey index measuring households’ willingness to buy fell for the sixth consecutive month to just 21.4, down almost 15pts from a year ago, more than 20pts below the long-run average and the weakest reading since the series began in 1982.

German retail sales slump at the start of Q4 as higher prices continue to erode purchasing power
German retail sales figures for October published this morning fell well short of expectations. In particular, the volume of sales slumped 2.8%M/M, the most since last December, to leave sales down 5%Y/Y and by more than 7% from the peak in November 2021. Destatis reported a marked decline in non-food store sales, by 4.5%M/M, with spending on clothing down a steep 5.7%M/M and furniture & fitting down 2.3%M/M. Food sales dropped 1.2%M/M, while spending at petrol stations stagnated. The value of sales was also down in October, albeit but a smaller 1.7%M/M to leave them still up more than 6%Y/Y, again illustrating the major erosion of purchasing power by high inflation.

Euro area unemployment rate expected to move sideways at series low
This morning will also bring euro area unemployment figures for October. Despite the deterioration in the euro area economic outlook, increasing concerns about global recession risks, and a steady decline in the Commission survey measure of firms’ employment intentions, the euro area’s jobless rate is expected to have moved sideways from September’s record-low 6.6%. Certainly, the German ILO unemployment rate was estimated to be unchanged at 2.9%, while Spanish figures reported an unseasonably large drop in unemployment in October. The final manufacturing PMIs for November are also due. Separately, ECB Chief Economist Philip Lane will give a keynote speech on ‘inflation diagnostics’.

UK house prices fall by the most since June 2020
According to Nationwide Building Society, UK house prices fell by the most since the start of the pandemic in November as the jump in mortgage interest rates and waning buyer enquiries since the spring took its toll. In particular, house prices fell for the second successive month and by a steeper-than-expected 1.4%M/M, to leave the annual rate of increase moderating by almost 3ppts to 4.4%Y/Y, the softest since August 2020. And with mortgage interest rates still elevated, household disposable income declining sharply and the economic outlook highly uncertain, we would expect the downtrend in house price growth to be maintained over coming months.

BoE Decision Maker Panel results and final UK manufacturing PMIs also due
Also of interest from the UK today will be the results from the BoE’s November Decision Maker Panel survey, with particular interest on firms’ expectations for their own output prices in the year ahead, CPI inflation and expected wage growth. The final manufacturing PMIs for November are also due – the preliminary results saw the output component rise for the third consecutive month, albeit to a still-contractionary 45.4, with new orders declining sharply as the survey implied the weakest external demand since the onset of the pandemic.

US personal spending figures and manufacturing ISM to be watched today
While Powell yesterday strongly hinted that the pace of tightening would slow this month, likely to 50bps, he also reiterated that rates still have further to rise thereafter and will likely remain higher for longer than the Fed’s previous forecast update in September. In terms of today’s data flow, of interest will be personal income and spending numbers for October, with only a modest increase in income expected (0.3%M/M) but firmer nominal spending numbers (0.9%M/M) due not least to high prices. This notwithstanding, the closely watched core PCE deflator is expected to rise at a softer pace (0.3%M/M) than in recent months. And following the slump in last week’s flash manufacturing PMIs, focus today will also be on the more widely-followed manufacturing ISM.

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