Wednesday, December 30, 2015

Prediction of Slow Global Growth

IMF chief Christine Lagarde predicts low global economic growth in 2016, with slower U.S. consumption spending and a stagnation in Chinese manufacturing. The Guardian story quotes a story in Handelsblatt:

As with other such predictions, the IMF may be lending too much credence to the manufacturing slowdown as a proxy for broader trends.

Friday, December 25, 2015

Criminal Investigation in Mudslide Dump

The follow-up to the deadly landslide in an industrial park in Shenzhen has revealed the situation to be more serious than initially thought. Only a single survivor was rescued from the buried buildings. Seven deaths are confirmed. After five days there is only a slight chance that more survivors could be found. The rescue effort has been hampered by a lack of suitable power equipment, so most of the digging has had to be done using hand shovels, leading to questions about the adequacy of the disaster response.

Officially, the event has been reclassified as a work safety failure rather than a natural disaster. The hill that collapsed in heavy rain was not a natural hill, but a very tall dump of construction debris and surplus soil. Local officials had ignored safety complaints about the dump for more than a year. Construction crews had not sought permission to pile the soil in a hill more than 100 meters tall, a strategy that directly violated construction safety laws and led to the mudslide. Government officials today announced a criminal investigation.

Telesur provides a roundup of recent developments:

Sunday, December 20, 2015

Mudslide and Explosion in Shenzhen

Disaster struck an industrial area in China again today, but this time it was a natural disaster, a mudslide burying several blocks of industrial facilities and triggering an explosion, either in a gas plant or in a pipeline. Various reports in recent hours put the number of people missing between 29 and 73. The mudslide struck an industrial park in Shenzhen near the border with Hong Kong. Around 1,000 people escaped ahead of the mudflow, which struck in the late morning. Several buildings collapsed, some were buried, and one was shown close to tipping over after being dislodged by the flowing mud. Economic Times: 59 missing as massive landslide hits China's Shenzhen BBC News: China landslide: Many missing after buildings collapse in Shenzhen

Sunday, December 13, 2015

Schwarzenegger Asks for Broad Approach to Climate Impact of Manufacturing

At the climate talks former California governor Arnold Schwarzenegger was one of the loudest voices calling for broad participation in the problems of fossil fuel use in manufacturing. It’s a problem that many had hoped that China, as the global leader in manufacturing, would take on, but as Schwarzenegger argued, that may not be realistic:

The whole world is (asking) China to produce their products so therefore we’re basically sending all the pollution to China and so now they have to deal with it and we all have to work together with them. It’s not like finger-pointing (at China) or like ‘them versus us,’ it’s more like ‘how can we do this together?'

Schwarzenegger also suggested that eating less meat, or becoming a “part-time vegetarian” as he put it, was one of the keys to climate success. A summary of his comments at the summit can be found at ZME Science:

While the whole world must take on the problem, China will lose customers if the climate costs of manufactured goods are seen as too high. Indeed, this must already be happening to a slight extent. Therefore, China must take a leading role in reducing the costs of the goods made in its factories.

Friday, December 11, 2015

Manufacturing Leads Stock Market Decline

This month’s stock market rout focused initially on manufacturing, materials, energy, and mining. Only in the last two days has the decline caught up to tech and retail stocks. The Australian stock market, heavily dependent on materials used in manufacturing, has taken the biggest hit this month. Apart from stocks, there have been sharp declines in oil, iron ore, and the yuan, all closely tied to manufacturing.

The declining yuan and other inflationary factors should in theory support the Chinese stock market, but that is a market that at this point is controlled more by a tangled knot of government interventions than by market forces. We saw another example of this today as one of China’s most prominent business executives disappeared today without any public explanation. Reportedly he was taken away by police, and the timing of the arrest suggests that he was suspected of selling stocks last week during a run-up in the Chinese stock market. The rumors reminded would-be stock investors that they too might be taken away (or their investment funds frozen) if they someday try to cash out of their “successful” stock investments, one of the many contradictions in the current Chinese stock market. The associated jitters helped drive Chinese stocks lower again today.

Sunday, December 6, 2015

Manufacturing Fools People Into Seeing Recession

With global manufacturing in decline, observers who mistakenly equate manufacturing with the total economy are already calling a global recession. An example is Raoul Pal in a CNBC appearance who looks only at manufacturing and monetary policy and considers that evidence enough to predict a recession in the coming months. If the trends continue we will see hundreds of these unfounded recession predictions, and the view could even become a consensus. Set manufacturing aside, though, and indications point to global growth continuing along the lines of the last three years.

Saturday, December 5, 2015

China Adds Index-Based Circuit Breaker

China will add a stock index circuit breaker next year. The latest and apparently final version of the plan will pause stock trading for 15 minutes after a 5 percent move in the large-cap CSI 300 index. A move of 7 percent would stop trading for the day. These changes are set to take effect in January. There are already similar circuit breakers for individual stocks that move more than 10 percent in one day. These trading rules are meant to slow, but not prohibit, a stock market crash. They may also limit speculators’ ability to manipulate stock prices.

Tuesday, December 1, 2015

Retail and Manufacturing Numbers

We anxiously await numbers from U.S. retail as a measure of the mood of the U.S. consumer. Indications so far suggest healthy growth compared to last year on the extended weekend between Thanksgiving and Cyber Monday. It looks like a cautious mood among shoppers, with slow sales of clothing but strong car sales. In my own local area I saw a muted Black Friday, though there were two malls that filled their primary parking areas Friday morning. Partly making up for the Friday slowdown, I saw surprisingly strong traffic at retail on Saturday afternoon.

It is manufacturing that is showing distinct signs of a global slowdown. Much of the recent slowdown in manufacturing is taken up by Volkswagen, which saw U.S. sales fall 24.7 percent in November compared to a year ago. Volkswagen is expected to face a formal criminal investigation in Germany after its diesel cars were found to be optimizing emission performance during emissions tests, but polluting ten times as much during normal driving.

Brazil is trudging through a year-long contraction that has seen employment levels fall by close to 10 percent. Brazil is affected most by its own dysfunctional political system, but is also disproportionately hit by the downturn in Chinese manufacturing, causing reduced exports and lower prices for materials such as copper. The latest PMI for Brazil came in at 43.8, revisiting levels of 2009. The survey showed manufacturers reduced production because of a broad decline in orders.

U.S. manufacturing is also showing a decline, with the ISM index at 48.6. November is the first month in which surveys of U.S. manufacturing have showed a decline, and it is only a slight decline, but perhaps large enough to take away the even smaller increases that U.S. manufacturing showed between July and October. The positive note in this survey was an increase in hiring as factories anticipate increases in production within the next two months.