Following a stronger than expected official manufacturing PMI August print by the Chinese statistics bureau on Friday, printing at 51.0, compared to 50.3 in July and expectations of a 50.6, overnight the secondary Chinese PMI reported by HSBC also showed expansion, rising from 47.7 to 50.1, slightly below estimates of 50.2. Then again considering China officially admitted its PMI data is inaccurate [12], this is hardly surprising, as it is simply the latest propaganda tool to telegraph what the Politburo wishes for the economy to report. That this came hours before China revised its 2012 GDP from 7.8% to 7.7% only put even more doubts on the accuracy of data whose primary purpose is to preserve confidence in an economy which as recently as June was in a state of disarray following the PBOC's brief and nearly disastrous attempt at rel tightening.
After China's weekend PMI release, Monday saw the full data dump of final Manufacturing PMIs from Europe, which on the surface was as good as it could get: with a composite PMI print of 51.4, compared to expectations and a flash reading of 51.3, this was the highest number in 26 months. Curiously it was mostly driven by improvements in the periphery. The breakdown was as follows:
- German Final PMI 51.8, down from 52.0 flash, and below expectations of 52.0
- French Final PMI, 49.7, same as the flash reading and expectations
- Italy Final PMI, 51.3, up from 50.4, and higher than the 51.0 expected: this was the highest since May 2011
- Spain Final PMI, 51.1, up from 49.8: the highest since March 2011
- Greek Final PMI 48.7, up from 47.0 - the highest in 44 months.
And so on. Graphically, Markit summarizes the diffusion index (i.e. sentiment pointing to "better", "worse" or "same") data as follows:
[13]
While one salutes a European "recovery" driven by the periphery containing such countries as Greece - which is just waiting for the German elections before it officially lobs a demand for a third bailout - one can't help but wonder if the PMI diffusion index in Europe has gotten some hints from its completely made up Chinese equivalent. This is especially acute when one actually reads the press releases describing the data constituency.
First Spain [14]:
“The news from the Spanish manufacturing sector improved again in August, with PMI data highlighting a first rise in output for 28 months. As has been the case in recent months, exports were the key source of positive momentum as growth quickened sharply. Firms appear still to doubt the sustainability of the current improvements, however, opting to raise output only modestly and often using existing stocks to meet new order requirements.”
There was evidence that in some cases firms used existing inventories to cover new orders rather than increasing production. The delivery of orders was mentioned by panellists that saw falls in backlogs of work and stocks of finished goods. Post-production inventories decreased at the fastest pace since March.
Manufacturers also continued to lower employment, despite rising demand. Firms partly linked the latest fall to attempts to improve efficiency. The rate of job cuts quickened to the sharpest in four months.
Or how about Italy [15]:
Despite recording sustained growth in output over the past three months, manufacturers maintained a preference for lower staffing numbers. The rate of job shedding in August was slightly faster than one month earlier....
“Growth was once again achieved without firms having to raise staffing levels, with August’s decrease in employment the twenty-fifth in a row. Firms reported being able to keep on top of higher order requirements, and further reduced their backlogs of work.
And finally for the Eurozone as a whole:
Employment remained a weak point for the manufacturing sector in August, with job losses recorded for the nineteenth straight month. The pace of reduction was slightly faster than in July – mainly due to steeper rates of decline in Germany, Italy and Spain – but still weaker than the average for the current sequence of job shedding. Only Ireland reported an increase in staffing levels.
..."the fact that companies remain reluctant to take on staff [due to the need to cut costs to boost competitiveness and offset rising oil prices] suggests that there’s a long way to go before the recovery feeds through to a meaningful job market improvement.”
So in summary: manufacturers feel broadly better about themselves: in fact the best in 26 months, with new orders largely fueled by export demand. Yet exports to where one wonders, considering net trade surplus data has been stronger than expected for virtually all nations in the past month: after all in a zero trade sum world someone has to be substantially increasing their imports? But more importantly, actual jobs - the real growth dynamo for the European economy - continue to deteriorate, accelerating their downward pace having declined for 19 months in a row.
Finally, and the biggest concern for Europe, continues to be the clogged monetary pipeline. As was reported last week, even with European M3 having peaked recently and is now rolling over, it is the credit to the private sector that posted the largest Y/Y drop on record. The Goldman breakdown was as follows:
Loans to non-financial corporations, on a seasonally adjusted basis, declined by €19.4bn in July, following a €12.5bn contraction in June. Adjusted for securitizations and sales, the figure was broadly similar. This larger fall is somewhat concerning after the rate of contraction in loans to NFCs moderated within the second quarter, although Q2 on average saw large falls in lending.
Loans to households fell by €4.8bn in July after a similar move in May. This is the third fall in loans to households since July 2012. Unlike corporate lending, loan growth to households remained broadly unchanged between mid-2012 and mid-2013, albeit with monthly loan flows well below their long-term average of €15bn.
So, in summary: better than expected European manufacturing driven by surging exports to somewhere, forcing employers to cut jobs for 19 straight months and at an accelerating pace in August, in the context of record low loan creation.
Forgive us if we remain skeptical on Europe's so-called "recovery", which just may meet reality once the German elections are over in less than a month.