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INDIA PMI - Further
moderation
India’s manufacturing PMI eased to a five-month low
of 52.6 in August (July: 53.6), indicating a slower pace
of expansion in economic activity. New export orders
fell significantly to 45, the second sub-50 neutral
reading, while the new order component eased to 53.1
in August and is well off the high readings in the 60-64
range in the January-June period. The output index
further declined to 56 (July: 57.2).
Still, the PMI survey data on production-related
activities should be used with care as it does not fit
very well with the official industrial production (IP)
data. Overall, the broader conclusion of moderating
economic activity is consistent with the broader
policy objective to moderate growth to check
inflation via monetary tightening.
India’s economic growth has been moderating since
early 2010 and printed sub-8% in the last two
quarters. GDP growth was in line with expectations
at 7.7% YoY in 2Q11, but the outcome was
somewhat flattered by the downward revision in
2Q10 growth to 8.8% YoY from 9.3%. Nonagriculture
GDP growth unexpectedly recovered to
8.4% YoY in 2Q11 after averaging 7.9% in the six
months to March due mainly to the jump in the
service sector’s output.
We recently cut our GDP growth forecast to 7.3%
(from 7.5%) for FY12 and to 7.5% from 8% for
FY13. Moderation in global demand and local
monetary tightening will result in further
deceleration in growth.
However, the details about price behaviour in the
PMI survey hint that WPI inflation is likely to
remain elevated. While the output price index edged
down to 55.6 in August (July: 56), the input price
index actually rose to a four-month high of 65.6.
Thus, overall pricing power of manufacturers
remains sufficient to ensure that WPI core inflation
will high. This will probably prompt the RBI to hike
again on 16 September, despite the signs of
moderation in economic activity
US NON-FARM PAYROLLS -
Double dip
US non-farm payrolls were weaker than expected in
August. They showed zero month on month
increase. These numbers will have been depressed
by 45k striking workers at Verizon but even
allowing for this the numbers were weak. The soft
headline was reinforced by dips in hours worked
and average earnings. Data based on the household
survey were better; civilian employment rose (but
was soft in July) and the unemployment rate was
static at 9.1%.
The latter must surely rise again unless the rate of job
creation accelerates. Analysts still debate whether the
US will “double dip” but it is worth reminding that
the US saw the unemployment rate rise from 8.8% in
March to 9.2% in June. Since June unemployment
has held constant at 9.1%. And unemployment is a
lagging indicator. The US started its second dip at the
start of the year when GDP growth fell from 2.3%
QoQ saar to 0.4% QoQ saar. It continued in 2Q with
the 1% QoQ saar expansion.
Discretionary spending numbers broadly confirm
this timing. Household spending on durable goods
has been softening since the start of the year. The
chart shows parallel trends in US auto sales, the
other number released on Friday.
The second quarter notch reflects the supply
interruptions following the Japanese earthquake.
Abstract from this and the numbers have been weak
since the start of the year. In August they were a saar
of 12.1mn compared with 12.2mn in July.
July saw a bounce in household spending. This
already looked to be temporary given the consumer
confidence numbers (remember the Conference
Board index contained a pessimistic assessment of
the ease of finding work). The implications of weak
August income growth in the employment report
give another reason to expect household spending to
retrace in August.
Which will feed back into employment generated in
the service sector. Business inventory data suggest
that retail inventories are lean and 3Q may therefore
see a boost to growth from restocking. Beyond this
it is hard to be optimistic on the second half GDP
growth. First half growth dipped below stall speed
and it is difficult to see 2H11 much better.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA PMI - Further
moderation
India’s manufacturing PMI eased to a five-month low
of 52.6 in August (July: 53.6), indicating a slower pace
of expansion in economic activity. New export orders
fell significantly to 45, the second sub-50 neutral
reading, while the new order component eased to 53.1
in August and is well off the high readings in the 60-64
range in the January-June period. The output index
further declined to 56 (July: 57.2).
Still, the PMI survey data on production-related
activities should be used with care as it does not fit
very well with the official industrial production (IP)
data. Overall, the broader conclusion of moderating
economic activity is consistent with the broader
policy objective to moderate growth to check
inflation via monetary tightening.
India’s economic growth has been moderating since
early 2010 and printed sub-8% in the last two
quarters. GDP growth was in line with expectations
at 7.7% YoY in 2Q11, but the outcome was
somewhat flattered by the downward revision in
2Q10 growth to 8.8% YoY from 9.3%. Nonagriculture
GDP growth unexpectedly recovered to
8.4% YoY in 2Q11 after averaging 7.9% in the six
months to March due mainly to the jump in the
service sector’s output.
We recently cut our GDP growth forecast to 7.3%
(from 7.5%) for FY12 and to 7.5% from 8% for
FY13. Moderation in global demand and local
monetary tightening will result in further
deceleration in growth.
However, the details about price behaviour in the
PMI survey hint that WPI inflation is likely to
remain elevated. While the output price index edged
down to 55.6 in August (July: 56), the input price
index actually rose to a four-month high of 65.6.
Thus, overall pricing power of manufacturers
remains sufficient to ensure that WPI core inflation
will high. This will probably prompt the RBI to hike
again on 16 September, despite the signs of
moderation in economic activity
US NON-FARM PAYROLLS -
Double dip
US non-farm payrolls were weaker than expected in
August. They showed zero month on month
increase. These numbers will have been depressed
by 45k striking workers at Verizon but even
allowing for this the numbers were weak. The soft
headline was reinforced by dips in hours worked
and average earnings. Data based on the household
survey were better; civilian employment rose (but
was soft in July) and the unemployment rate was
static at 9.1%.
The latter must surely rise again unless the rate of job
creation accelerates. Analysts still debate whether the
US will “double dip” but it is worth reminding that
the US saw the unemployment rate rise from 8.8% in
March to 9.2% in June. Since June unemployment
has held constant at 9.1%. And unemployment is a
lagging indicator. The US started its second dip at the
start of the year when GDP growth fell from 2.3%
QoQ saar to 0.4% QoQ saar. It continued in 2Q with
the 1% QoQ saar expansion.
Discretionary spending numbers broadly confirm
this timing. Household spending on durable goods
has been softening since the start of the year. The
chart shows parallel trends in US auto sales, the
other number released on Friday.
The second quarter notch reflects the supply
interruptions following the Japanese earthquake.
Abstract from this and the numbers have been weak
since the start of the year. In August they were a saar
of 12.1mn compared with 12.2mn in July.
July saw a bounce in household spending. This
already looked to be temporary given the consumer
confidence numbers (remember the Conference
Board index contained a pessimistic assessment of
the ease of finding work). The implications of weak
August income growth in the employment report
give another reason to expect household spending to
retrace in August.
Which will feed back into employment generated in
the service sector. Business inventory data suggest
that retail inventories are lean and 3Q may therefore
see a boost to growth from restocking. Beyond this
it is hard to be optimistic on the second half GDP
growth. First half growth dipped below stall speed
and it is difficult to see 2H11 much better.
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