Unemployment claims decline
The labor market remains in good shape. Initial jobless claims fell 4,000 to 213,000 (sa) in the week ended November 16, the lowest since April (chart). While continuing claims increased 35,000 to 1.908 million, the Veterans Day holiday likely affected both measures. Not seasonally adjusted data showed a larger decrease in initial claims and a smaller increase in continuing claims. (Ed Yardeni)
The unemployment rate peaked at 4.3% in July and dropped to 4.1% in October…and maybe even lower in November/December.
FLASH PMIs
Renewed fall in Eurozone business activity as services joins manufacturing in contraction
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, dropped to 48.1 in November, after having registered at the no-change mark of 50.0 in October. Output has now decreased in two of the past three months. Although modest, the rate of contraction in November was the most marked since January.
For the first time since the opening month of the year, both monitored sectors saw output decrease in November as services joined manufacturing in contraction. The reduction in services activity was only slight, however, and much weaker than that seen in manufacturing, where the pace of decline quickened from October. Manufacturing production has now decreased in each of the past 20 months.
Falling business activity reflected a waning demand environment. New orders decreased for the sixth month running in November, and at the fastest pace in 2024 so far. Sharper reductions in new business were seen across both manufacturing and services.
In line with the picture for total new orders, new business from abroad (which includes intra-Eurozone trade) also declined to the largest extent since the end of last year. New export orders were down sharply, and to a greater degree than seen for total new business.
The renewed reduction in business activity in November was accompanied by waning confidence in the year-ahead outlook. Business sentiment dropped sharply and was the lowest since September 2023. The overall loss of confidence was centred on the service sector, where optimism fell to a two-year low.
Pessimism was seen in France for the first time in four-and-a-half years, while German companies were slightly more confident than in October. Meanwhile, the rest of the euro area remained strongly optimistic in the 12-month outlook for output, albeit slightly less so than in the previous month.
Companies in the Eurozone lowered employment for the fourth consecutive month in November, although the rate of job cuts was only marginal and softer than seen in October. There were divergent trends between the two monitored sectors, however.
Manufacturing workforce numbers decreased markedly, and to the largest degree since August 2020. Meanwhile, services employment continued to increase, with the latest rise the fastest in four months. Staffing levels fell in Germany, but rose in France and in the rest of the Eurozone.
There remained evidence of spare capacity in the private sector as backlogs of work decreased again. Moreover, the latest depletion in outstanding business was the greatest since January.
The rate of input cost inflation quickened to a three-month high in November, but was still slower than the average over 2024 so far. A sharp increase in services input prices was mitigated to some extent by falling input costs in the manufacturing sector.
Output prices also rose at a pace that was faster than in October but softer than on average across the opening 11 months of the year. In line with the picture for input costs, higher charges for services contrasted with falling selling prices in manufacturing. At the composite level, output prices increased in Germany, France and across the rest of the Eurozone. (…)
“The environment in November is stagflationary. On one hand, activity is declining across the board, while on the other, input and output prices are rising more quickly. This surge is driven by services costs, which ties in with the sharp rise in wages in the eurozone in the third quarter. Service sector selling price inflation is a major headache for the ECB. Given this backdrop, some ECB members might even argue for a rate pause in December, but most will probably stick with a 25-basis point rate cut.
“In November, manufacturing purchase prices didn’t drop as much as the previous month. If the euro keeps weakening, purchase prices might even rise in the coming months, especially if the EU Commission imposes counter-tariffs in response to potential US tariff hikes.”
Japan: Business activity falls further in November Manufacturing output and new orders fell.
The U.S. flash PMI is out later today.
Japan Approves $141 Billion Stimulus to Boost Economy, Offset Living Costs The government estimates the impact could be as much as 39 trillion yen
Ishiba has said his government will focus on getting the economy to completely exit deflation and create growth driven by higher wages and investments. But he faces a bumpy road ahead in steering policy after the ruling coalition lost its majority in the lower house of parliament following a general election in late October.
Under the new economic package, the government will give cash handouts of ¥30,000 to low-income households as an inflation-relief measure, with an extra ¥20,000 per child to be given for families with children.
The government is also planning to resume subsidies for gas and electricity bills from January to March next year. The cabinet estimates that the energy subsidies will reduce consumer prices by a monthly average of 0.3 percentage point from February to April.
The government has intermittently provided energy subsidies since January 2023, which has been a major factor affecting consumer inflation trends. Underlying inflation, which excludes fresh food and energy prices, rose 2.3% in October from a year earlier, government data released Friday showed.
In an attempt to reinforce chip supply chains and promote innovation in artificial intelligence, the government will also provide 10 trillion yen in subsidies and other financial support to businesses in relevant fields until fiscal 2030.
Officials will discuss the possibility of raising the ceiling for tax-free income, which is currently set at ¥1.03 million. Lifting the threshold is one of the main campaign promises made by the opposition Democratic Party for the People.
The higher ceiling would encourage part-timers to work longer hours, possibly helping to ease the nation’s chronic labor shortages and stimulating consumer spending.
On the other hand, it could worsen the Japanese government’s fiscal situation, which is already among the worst in major economies. Japan’s public debt has grown to more than double the size of its economy. With the central bank expected to keep raising interest rates, repaying that debt will likely cost more.
If the income-tax barrier is raised to ¥1.78 million, as sought by the DPFP, that could reduce tax revenue for the central and local governments by up to 8 trillion yen, according to government estimates.
The latest package will require about ¥13.9 trillion in additional government general-account spending.
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“We see few measures in the supplementary budget that would immediately boost the economy, and we believe that the positive impact on GDP will be limited.” (Goldman Sachs)
Trudeau unveils $6.28-billion in new spending on two-month GST break, stimulus cheques
The federal government unveiled its multibillion-dollar plan to alleviate pocketbook pressures for households, dropping the GST on a wide range of products for a two-month period and sending most working Canadians a $250 cheque in April.
The measures will cost the federal government $6.28-billion, according to the Finance Department – $1.6-billion for the sales tax break and $4.68-billion for the cheques. (…)
“Our government can’t set prices at checkout, but we can put more money in people’s pockets,” he added.
The announcement comes just months after the Prime Minister dismissed the idea of sending Canadians money directly, arguing that it would be inflationary. He said Thursday that circumstances have changed because inflation has cooled. (…)
The Liberals had pledged to keep the deficit below $40-billion, but last month the Parliamentary Budget Officer said it was already on track to be higher than that, estimating the government would record a $46.8-billion deficit for the 2023-24 fiscal year. (…)
Christmas trees, kids’ clothing and toys, beer, wine, and restaurant meals are among the items that Canadians will no longer have to pay GST on between Dec. 14 and Feb. 15.
The $250 cheques will be tax-free and be sent to all Canadians who worked in 2023 and earned a net individual income of up to $150,000. (…) The government estimates that 18.7 million people will qualify for the cheques.
Bay Street’s view on Thursday was that the stimulus, especially when combined with the $3-billion worth of cheques that Ontario will also send out next year, will spur economic growth in the short term and kill the chances for a larger interest rate cut from the Bank of Canada next month. (…)
Canadians will get GST relief on the following items:
- Children’s clothing, footwear and diapers
- Children’s car seats
- Real and fake Christmas trees
- Physical newspapers
- Physical books and audiobooks
- Children’s toys and games
- Jigsaw puzzles
- Video-game consoles and physical copies of video games
- Beer, wine, cider, plus coolers up to 7 per cent alcohol by volume
- Snacks such as candy, chips, granola bars, ice cream, pudding
- Baked goods
- Carbonated soft drinks, non-carbonated fruit juice, bottled water, fruit-flavoured beverages
- Prepared foods and food platters
- Food and drinks at restaurants and cafés
Ridiculous and a logistic nightmare for 2 months!
BTW: Black Friday falls on Nov. 29 this year, so items purchased during that time will not qualify for GST relief measures.
Governor Abbott Directs State Agencies To Divest Portfolios From China
Governor Greg Abbott today sent a letter to Texas state agencies directing them to divest from risky investments originating from China. The Governor ordered Texas state agencies to protect Texans from exposure to the Chinese Communist Party (CCP) by fully divesting from China as soon as possible.
“Security of Texas and Texans is of utmost importance,” reads the letter. “That includes the financial security of Texas state investments. Threats to that security can come from foreign adversaries, including the Chinese Communist Party (CCP), whose belligerent actions across the Southeastern Pacific region and the world have increased instability and financial risk to the State holding investments in China.
Therefore, all investments of state funds in China must be evaluated and immediately addressed. To further this goal, I direct Texas investing entities that you are prohibited from making any new investments of state funds in China. To the extent you have any current investments in China, you are required to divest at the first available opportunity. Texas will defend and safeguard itself and our public treasury from any potential threat, including those posed by the CCP.”
SENTIMENT WATCH
Is there any reason to diversify? (Bloomberg)
But why bother with U.S. equities?