Manufacturing Gains in U.S. as China Stalls: Global Economy
Manufacturing will take center stage in the global economic watch this week, with the U.S. projected to fare better than the rest.
Orders (CGNOXAI%) for American-made capital equipment such as computers and machinery probably climbed in March by the most in four months, economist forecast an April 24 report will show. In the euro zone, a report may indicate factories are growing at a steady pace in April, while similar figures out of China will probably signal factories in the world’s second-biggest economy are pulling back, though not as severely as in March.
Elsewhere, German business confidence may have slipped in April, inflation in Australia at the start of 2014 probably approached the top of its central bank’s preferred range, and Brazil likely posted a current-account deficit in March.
U.S. DURABLE GOODS
-- Bookings for U.S. durable goods, those made to last at least three years, climbed 2 percent last month following a 2.2 percent gain in February, according to the median forecast of economists surveyed by Bloomberg. Orders for non-military capital equipment excluding airplanes, which are considered a proxy on the outlook for business investment in such things as computers and machinery, increased 1 percent, the most since November, the survey showed.
-- “The case for acceleration in investment remains strong,” Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, wrote in an April 17 note. “When growth picks up, investment tends to rise some multiple of the overall growth rate. This is an important insight. Investment is cyclical. You cannot be optimistic on growth without expecting capital spending to rebound.”
-- For Brett Ryan, an economist at Deutsche Bank Securities Inc. in New York, one of the most important investment drivers is that excess capacity, or the amount of unused factory space and equipment, is dwindling. The extent of potential being used at factories, mines and utilities in the U.S. reached 79.2 percent in March compared with an average 79.4 percent since 1980, the Federal Reserve reported last week. “The fact that capacity utilization rose to a new, post-recession high in March is a strong positive for faster business investment in the medium term,” Ryan wrote in an April 17 note.
-- A gauge of Chinese manufacturing probably rose in April to 48.3 from 48 a month earlier, according to the median estimate of economists surveyed by Bloomberg. Readings lower than 50 signal factories are contracting. The preliminary reading of the Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics is due April 23.
-- Why to expect some stabilization? Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, says the correlation between manufacturing in China and the price of iron ore is very strong. Recent gains in the metal’s price reflect improving demand as China factories steady. “While ‘correlation may not be causation,’ we believe it is worth keeping an eye on,” Beacher said in a report. “After falling another 8 percent in March to an average of just under $112/t (dry ton), the April iron ore price average so far is up 5 percent to just over $117/t.”
-- Euro-area manufacturing and services activity remained broadly unchanged in April. A survey of purchasing managers by Markit Economics will show the region’s preliminary April composite index was little changed at 53 compared with 53.1 the prior month, according to the median forecast in a Bloomberg survey before an April 23 report. A gauge of manufacturing output was probably unchanged at 53, while a measure of services activity climbed to 52.5 from 52.2 in March, according to the Bloomberg survey. Readings greater than 50 signal growth.
-- “The overall impression is that the euro-zone manufacturing sector is currently on a modest recovery path,” said Howard Archer, chief European economist in London for IHS Global Insight. “It looks likely that industrial production saw reasonable, if unspectacular, growth across the euro zone in the first quarter and made a positive contribution” to growth.
GERMAN BUSINESS CONFIDENCE
-- German business confidence as measured by the Ifo research institute probably declined in April for a second month as companies weigh a slowdown in emerging markets and the risk of escalating sanctions against Russia over its annexation of Crimea. The index dropped to 110.4 from 110.7 in March, according to the median forecast of economists surveyed ahead of an April 24 report. A gauge of current conditions rose to 115.6 from 115.2, while a measure of expectations fell to 105.8 from 106.4.
-- “German Ifo business confidence should have clouded further,” said Gerd Hassel, an economist at BHF-Bank AG in Frankfurt. “Especially the Ukraine crisis and the uncertainty about the future development in emerging markets may have damped sentiment.”
-- Australia’s core inflation probably approached the top of the Reserve Bank of Australia’s 2 percent to 3 percent band in the first three months of 2014 from a year earlier, the median estimate of economists surveyed by Bloomberg showed ahead of government data due April 23. The nation’s currency dropped about 14 percent in 2013 and the benchmark interest rate has remained at a record-low 2.5 percent since August last year.
-- “The policy-relevant measures of underlying inflation should test the RBA’s target,” Michael Blythe, Sydney-based chief economist at Commonwealth Bank of Australia, the nation’s biggest lender, said in a research report. “A top-down modeling approach shows a rising contribution from import prices courtesy of the lower Aussie dollar.”
NEW ZEALAND RATES
-- The Reserve Bank of New Zealand will raise its official cash rate by a quarter percentage point to 3 percent when it meets on April 24, according to economists surveyed by Bloomberg. That would be consecutive increases by policy makers, even as the currency has risen about 5 percent this year and inflation came in slower than forecast last quarter.
-- “Key signs to watch for are any discomfort over the extent to which dairy prices have fallen and to the further lift in the New Zealand dollar since the RBNZ’s first OCR increase,” Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland, said in a research report. “Of some consternation to the RBNZ, the NZD has been strong even as dairy prices have fallen. The NZD has not been performing its buffer function.”
BRAZIL CURRENT ACCOUNT
-- Brazil’s central bank on April 25 may report that the country posted a 59th straight current-account deficit in March. Brazil’s current account gap, financed largely by foreign direct investment, rose to a record $81.4 billion in 2013, with FDI covering 79 percent, down from 127 percent in 2011.
-- “I expect 75 percent to 80 percent of the current account deficit in 2014 to be financed by foreign direct investment. I don’t think it’s going to be a big issue,” Marcelo Salomon, co-head for Latin America economics at Barclays Plc, said by telephone. “As we move through the second quarter and into the third quarter, we should see better current-account numbers. The most important thing is that the trend of deterioration that we saw last year has halted.”
-- “The main story will be the stability in the current-account deficit,” Roberto Padovani, chief economist at Votorantim Ctvm Ltda, said by phone. “There is lower demand for external savings.”
To contact the reporter on this story: Shobhana Chandra in Washington at firstname.lastname@example.org