Japan, China, and German Green Shoots Stories Looking Doubtful

One of the alleged reasons for cheer on the economic front is that major foreign economies are bottoming. For instance, Japan reported the biggest increase in industrial production in 56 years roughly two weeks ago, A comment from a Bloomberg story on that release:

This is not so much a green shoot as it is a green tree,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “Optimism on Japan is certainly not misplaced as we look at a reasonably strong quarter of growth in April to June.”…

Unless you are an equity salesman, never make too much of one data point. Both capital expenditures and inflation data out of Japan today paint a much more mixed picture. Similarly, the press has keenly reported signs of life in China, despite falling electricity use. a telling indicator of economic activity. While Germany has not been a focus of optimism, the news from there continues to be less than cheery.

First to Japan. From MarketWatch (hat tip DoctoRx):

A key indicator of Japanese corporate capital investment slipped far more than expected Wednesday, while an index of wholesale prices showed a deeper-than-expected drop, suggesting pressures remain on the world’s second-largest economy.

Japanese core machinery orders fell a seasonally adjusted 5.4% in April from March, the Cabinet Office said Wednesday, a much weaker result than the 0.8% rise predicted by analysts surveyed by Nikkei and Dow Jones Newswires.

Core orders exclude those from electric power firms and shipbuilders, which can skew monthly data due to their large sizes.

“Machinery orders predict capital spending three to six months down the road. Hence, major Japanese firms still exercise great caution in capex, even as exports are recovering on a (month-on-month) basis,” said Uwe Parpart, chief economist for Asia at Cantor Fitzgerald.

Manufacturing sector orders skidded 9.4% from the previous month, while non-manufacturers’ orders fell 8.8%, the government data showed….

Separately, the corporate goods price index was down 5.4% in May compared to the same month last year, according to data released Wednesday by the Bank of Japan. The drop was the fastest in 22 years, according to news reports.That was more than the 5.1% drop forecast by analysts..

More commentary from Bloomberg:

Orders for Japanese machinery fell to a 22-year low in April as dwindling profits forced companies to cut costs amid the worst postwar recession.

Bookings, an indicator of capital investment in the next three to six months, fell 5.4 percent to 688.8 billion yen ($7.1 billion), the lowest since April 1987, the Cabinet Office said today in Tokyo. Economists predicted a 0.6 percent drop. . .

A separate report today showed that producer prices, or the costs companies pay for energy and raw materials, tumbled 5.4 percent from a year earlier, the biggest slide since 1987, according to the Bank of Japan. . .

Still, even after showing signs of stabilizing, exports and production have fallen by more than a third from last year’s levels. Only about half the nation’s factory capacity is being used, putting pressure on managers to cut costs and delay investment s.

A survey published this week by the Nikkei newspaper showed that Japanese companies plan to cut capital spending by an unprecedented 15.9 percent this business year. The previous record was an 11.8 percent decline that came in 1993 when the bursting of Japan’s asset bubble left companies saddled with plant and equipment they no longer needed. . .

“Capacity utilization is so low and profits have fallen so sharply that I just don’t see a strong recovery,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “What you can say is there are signs that orders are bottoming. The numbers aren’t plummeting like they were at the beginning of the year.”

A tart take on the latest news from China, a dramatic fall in producer prices, comes from Karl Denninger (hat tip reader Scott):

From Bloomberg

….Prices dropped 1.4 percent in May from a year earlier, after falling 1.5 percent in April, the statistics bureau said today. The median estimate in a Bloomberg News survey of 16 economists was for a 1.3 percent decline. Producer prices fell 7.2 percent, the most on record.

Recovery eh?

Producer prices are paid when products go into production, of course. Consumer prices are paid when products are sold.

There is a lag between production and sale (duh)

If producer prices are precipitously declining at this sort of a rate – annualized at 86.4% – it is not signaling “stabilization” or “recovery” – it is signaling incipient economic collapse as the demand for those goods at the producer level is insufficient to support prices at all.

Bluntly, that’s a base jump and as noted, “the most on record.”

“China’s economy is already rebounding and as soon as it regains momentum, prices will return to positive territory,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney.

Pure nonsense – either the PPI is wrong or their economy is nowhere near stabilization, say much less a “rebound.”

Yves here. As mentioned here and elsewhere, the media cheerleading is reminiscent of the old Soviet press. Back to Denninger:

And by the way, that PPI decrease is not in raw materials:

While the Reuters/Jefferies CRB Index of 19 raw materials, including oil and copper, is down about 39 percent from a year ago, it has climbed about 14 percent in 2009.

That’s especially bad – raw materials are up 14% this year (~3% monthly, if all months are equal, which of course they never are) but last month the PPI was down 7%.

Its always dangerous to believe anything in economic statistics coming out of China. If you think OUR government lies…….

Now to Germany, via Eurointelligence:

After exports stabilised in March, they got worse again in April, much worse. German exports declined by 4.8% month on month during April, and by 28.7% year-on-year, which the FT points out is the worst fall since the 1950s. Industrial production also fell in April, by 1.9%. These are really terrible figures. No green shoots here.

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  1. Bill

    Thanks Yves, I hope you're enjoying your trip.

    As a reader totally unschooled in econ or finance, I have to read knowledgeable blogs to keep up.

    Yours has become a daily requisite, as has Karl Denninger's, so it's good to see you quoting him.

    After thinking he was a really extreme wacko, I have come to rely on his blog for the real no-holds-barred truth about the economic situation, as I do on yours.

  2. mxq

    1.5tr yuan dished out in 4-5 months (more than the entire 2008) and producer prices fell 7%…along with the 15% increase in raw material prices, mentioned above…common sense struggles to justify this one.

    RE: China's power output

    "total power output shipped via major grid networks in May fell around 3.5 percent, narrowing from a 3.55 percent decline in April, according to earlier data from the State Grid Distribution Center…the May figures have a weak basis for comparison, given that the Sichuan earthquake fell on May 12, 2008. The fact that power output was still down year-on-year in May 2009 is a measure of the weakness in power demand after the economic downturn."

  3. xspecterxx

    I think you made a mistake here. It looks to me that the Bloomberg story is saying that Chinese producer prices fell 7.2% from a year earlier, NOT 7.2% from the previous month. That obviously makes a huge difference…

  4. Steve Koch

    Japan, China, and Germany are all net exporting nations. Before they can export, somebody has to import. Won't the net importing countries lead the recovery, since they don't depend on exports as much as Japan, China, or Germany?

    Shouldn't there be some discussion about how much the USA should be importing? Weren't we consuming way too much for way too long? What is the strategy for us to balance imports and exports? What is the strategy for other countries (such as China) to do the same?

    Before the great depression, the USA was a net exporter. Before this recession, the USA was a net importer. How does this profound difference in economic roles impact our economic recovery strategy this time around?

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