Ed’s Daily Notes for August 13th   Leave a comment

Bloomberg: China Industrial-Output Growth Slows in Sign Recovery at Risk

China’s industrial-output and fixed-asset investment growth unexpectedly slowed last month, putting a recovery at risk as the government copes with a property slump and rising bad loans.

Factory production rose 9 percent from a year earlier, the National Bureau of Statistics said today in Beijing, compared with June’s 9.2 percent pace, which was also the median estimate of analysts surveyed by Bloomberg News. Fixed-asset investment increased 17 percent in the January-July period and retail sales gained a less-than-projected 12.2 percent last month.

Earlier today, a report showed the broadest measure of new credit unexpectedly plunged to the lowest level since the global financial crisis. Today’s figures suggest Premier Li Keqiang will need to step up stimulus to meet his target for economic growth of about 7.5 percent this year.

But will he? Consider the following:

Bloomberg: China Credit Gauge Plunges as Expansion in Money Supply Slows

China’s broadest measure of new credit unexpectedly plunged to the lowest level since the global financial crisis, adding risks to economic growth already headed for the weakest annual pace in 24 years.

Aggregate financing was 273.1 billion yuan ($44.3 billion) in July, the People’s Bank of China said today in Beijing, suggesting a tightening after a Bloomberg LP gauge showed China loosened monetary conditions last quarter at the fastest pace in two years. New local-currency loans of 385.2 billion yuan were half of projections, while M2 money supply grew a less-than-anticipated 13.5 percent from a year earlier.

…“The numbers reflect both tightened regulation over certain financing activities and an underlying weak economy,” said Zhang Bin, an economist in Beijing with the state-run Chinese Academy of Social Sciences. “There’s still no real recovery in growth — at best, we can say that economic performance is stabilizing at a low level.”

Economics has it’s own “chicken or the egg” argument. What drives an economy: demand or supply? A lot of empty cities in China prove supply ain’t it, at least not by itself.

To increase money supply without money demand, as some people expect Premier Li Keqiang will do, artificially inflates investment costs, specifically in the area of equities, bonds, and other investments, without actually increasing basic economic activity. You would think the U.S. would be a good enough example of that: Even with last quarter’s GDP increase (after the previous quarter’s fall), the employment participation rate was unaffected. Money is moving around, but it isn’t getting to the people. Where is China’s incentive to increase the money supply? The only reason to do this is to take advantage of untapped demand in their economy. This is possible, but I would hope the Chinese are smarter about it than the U.S. has been.

Bloomberg: Japan’s Economy Shrinks the Most Since 2011 Quake on Tax

China’s neighbor is doing even worse:

Japan’s economy contracted the most since the record earthquake three years ago as consumption and investment plunged after an April sales-tax increase aimed at curbing the world’s biggest debt burden.

Gross domestic product shrank an annualized 6.8 percent in the three months through June, the Cabinet Office said. That was less than the median estimate of 37 economists surveyed by Bloomberg News for a 7 percent drop. Unadjusted for price changes, GDP declined 0.4 percent.

While Prime Minister Shinzo Abe is counting on a quick rebound, the economy was struggling in June, with output falling the most since March 2011 as companies tried to pare elevated inventories. The government is ready to take flexible action if needed, Economy Minister Akira Amari said today, as Abe weighs whether Japan can bear another bump in the levy in 2015.

Tax increases have such a great history of economic improvement (tongue firmly planted in cheek)…

Bloomberg: First-Time Buyers Shut Out of Expanding U.S. Home Supply

The four-bedroom house that Ilia Nielsen-Dembe purchased in west Denver earlier this year wasn’t her top choice. The first-time buyer had to settle on a home in a neighborhood with a high crime rate after losing out on bids for five properties in more desirable areas.

“I definitely sacrificed in terms of location,” said Nielsen-Dembe, 33, who lives with her husband and two daughters in the house she bought in April for $184,500. “I had to cross streets that were not ideal in order to get a house.”

While the supply of U.S. homes for sale is at an almost two-year high and price gains are moderating, buyers such as Nielsen-Dembe wouldn’t know it. An inventory crunch for entry-level houses has only worsened during the past year as discounted foreclosures become scarce and cash-paying investors snap up affordable listings to convert to rentals. Properties at the lower end of the market are also the most likely to have underwater mortgages, keeping would-be sellers from moving.

In other words, the U.S. housing market is still broken.

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Posted August 13, 2014 by edmcgon in China, Economy, News, Real Estate

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