Wednesday, 5 February 2014

Asia - services PMIs, real wages and domestic demand

Services PMI numbers day today around the world.  China has published its (ok but slightly dull) number earlier in the week, so what is the rest of Asia saying?

Taiwan was good with the HSBC Taiwan Purchasing Managers’ Index posting at 55.5 in January, up from 55.2 in December.  This was 'the strongest improvement of business conditions since April 2011'. Hmm, quite good
In India the headline HSBC Services Business Activity Index increased from December’s 46.7 to 48.3 in January, which 'signalling a moderate rate of output contraction that was the weakest in the current seven-month sequence of decrease'.  Getting better but still contracting
Meanwhile in Russia, the 'seasonally adjusted HSBC Russia Services Business Activity Index remained above the no-change mark of 50.0 for the sixth month running in January, but the latest figure of 50.2 signalled a near-stagnation in growth of total services output. The equivalent Manufacturing Output Index declined to 48.5, resulting in the Composite Output Index slipping into contraction territory at 49.6. This signalled the first reduction in private sector output since July 2013'.  Not so good
So terribly mixed today.  Japan too published services PMI and composite (manufacturing plus services) PMI data today.  The manufacturing data released earlier in the week was blowout but the services data was dull and posted a 5 month low of 51.2.  Nevertheless, the composite data - due to the strength of the manufacturing side - was good.  Markit correlates this with GDP...and looking at the data it looks good, yes?
But here is the problem.  Not only is the manufacturing sector now lapping the start of the weak Yen period (so making manufacturing gains more difficult from here) but the dullness in the services side reflects the data released earlier today that Japanese wage growth (pre overtime) fell 0.2% in December, their 19th consecutive monthly decline.  With inflation hopes rising, the risk of a real income declines in Japan are apparent.  For Abenomics to work, real incomes need to rise or the Yen needs to fall substantially further.
Talking about potentially fading domestic demand, these statistics from Indonesia to me show the potentially fragile nature of its economy.  Would you really want to be relying on external factors so materially in 2014?  Some commentators have highlighted this slowdown is helpful from an anti-inflation/interest rate stability perspective but a clearer conclusion for me would be that Indonesia has slower growth in FY14 year-on-year. 


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