Wednesday, October 28, 2015

Apple Reports Strong iPhone Sales

The Apple earnings report, which showed a nice jump in China sales of iPhones, seems to have reassured global stock markets about the state of the Chinese consumer, and to some extent that of Chinese manufacturing. Chinese stock were down today but remain at elevated levels and well above the levels of September.

Sunday, October 25, 2015

The Slower Growth Talking Point

Officials in China are working to lower expectations of economic growth. After years of promoting the ideal of 7 percent GDP growth year after year, statements now hint at the reduced goal of 6 percent growth for maybe four more years, followed by a more conventional 4 percent rate.

China’s 7 percent growth rate was possible only because it was replacing its own traditional business methods with business plans copied from the rest of the world. That’s an approach that can’t go on forever. What do you do after you’ve copied everything you can copy? If you are hopelessly optimistic, you try to copy the things you can’t copy, leading to widespread business failures and a crash. If you are more pragmatic, you copy the incremental improvements, but of course, that leads to a more incremental growth rate. In the end, China will have to lean more heavily on its own native ability to design business processes, and then it will be slowed down by the same resistance to change that the rest of the world contends with when it tries to grow.

In the short run, there remains the question of whether the economy in China is legitimately growing at all in the second half of this year. Talk of lower growth rates sets the stage for bringing the official figures more in line with what’s really going on.

Tuesday, October 20, 2015

Yum Brands to Spin Off China Operations

Yum Brands is preparing to sell its entire China operations to investors. Yum faced food-quality scandals in China that have hurt sales, and nearly two years later, perceptions of the KFC brand in particular have not recovered. A sale of the restaurant chain and changes in the concept, recipes, and way of operating is probably the easiest way to restore diners’ confidence in the restaurants.

Monday, October 19, 2015

IBM Posts 14th Straight Decline, Sees Sharpest Drop in China; A Measure of Corporate Decline

When IBM reported its quarterly earnings tonight, everyone knew revenue would show a decline. After all, IBM had declining revenue in the previous 13 quarters and showed no sign of a sudden turnaround. Revenue was down more than expected this time, down 19 percent from a year ago. The sharpest drop in sales came in China, IBM said, while the strongest increase, or perhaps the only large increase, was in India.

IBM sells mostly to the large-enterprise sector, so its long-term decline speaks to the declining fortunes of large corporations collectively. That China was where IBM saw the steepest decline hints that China may not be immune to the misfortunes of the large-corporate sector.

Official Figures Show Slow Manufacturing; Stimulus Measures Expected

Official figures show third quarter China GDP in line with official plans and market estimates, growing at an annual rate of 6.9 percent, but with slowing growth in manufacturing. Analysts looking at other measures say the economy is growing at a slower rate than official figures indicate and that manufacturing is nearly flat and more likely to be declining than expanding. MarketWatch summarizes analyst reaction:

Economists looking at policy in China expect a boost in stimulus and inflationary measures. At The Australian:

Thursday, October 15, 2015

Declining U.S. Factories, Weak Retail

Two Fed surveys found slightly weaker manufacturing activity. Manufacturing employment also declined slightly. This suggests that the United States is not immune from the global decline in manufactured goods. At Calculated Risk:

A poor report yesterday from retailer Walmart, which sells more consumer goods made in Chinese factories than most U.S. retail chains, points to weak demand as consumers mostly hold on to the “windfall” from lower fuel prices. Walmart also issued a profit warning for next year, citing the strength of the U.S. dollar as a concern. RTT News at Nasdaq:

Wednesday, October 14, 2015

Low Inflation

Low inflation brought a week-long stock rally to a stop. Investors are counting on rising prices to eventually catch up to the elevated prices of stocks, but producer prices fell for the 43rd month in a row and consumer prices were up just 1.6 percent from the year before. From Xinhua:

The China inflation report dampened global markets. U.S. bond yields dipped below 2 percent on this news and a report of declining imports in China. A decline in imports and exports was expected, but China imports fell a surprising 17 percent in nominal terms from the year before.

Sunday, October 11, 2015

Slow Consumer Spending in Japan

Retail reports from Japan suggest consumers in that country are being more restrained in their purchases of clothing and manufactured goods. Retailers’ reports tell the story: Japanese consumers continue to spend on food and transportation, but with food prices rising and tax increases on the way, “Consumer spending has ground to a halt.” Economic outlook summary from Reuters:

Japan is one of the key markets for consumer goods, but it cannot be expected to contribute to global growth in that area within the next year.

Wednesday, October 7, 2015

Talk of a Crash

Speculation about a sharp economic downturn in China has become almost routine. It is quite a change in outlook from four months ago when the Chinese economy was seen as unshakable in the consensus view. This roundup by Rose Powell in the Sydney Morning Herald is one of the more cautious and reserved looks at what might be happening in China:

Tuesday, October 6, 2015

China Consumers Turn Away From Yum Brands

Yum Brands is blaming a strong U.S. dollar for its weak sales in China, but you can’t tell that to Nike or Apple. It looks as if Chinese consumers are becoming more practical in their spending, and you don’t have become very practical to look for an alternative to the food company that brought you KFC, Taco Bell, and Pizza Hut. Investors looking for a bounce back from the meat scandal that killed sales a year ago were disappointed at China same-store traffic up only 2 percent and expected to reverse before the year is over. From BBC News: KFC owner Yum shares down 17% on China forecast.

Of course, some analysts are saying weak demand for deep-fried chicken is a sign of a recession in China. That’s a bit of a stretch, but perhaps a fair question to ask at this point.

Thursday, October 1, 2015

IIF Points to China Crash Worries

Fears of a crash in China could be self-fulfilling, says Institute of International Finance (IIF). As investors pull money from developing economies, particularly China, because of worries of a crash, the shortage of capital could create a slowdown. The IIF says the current outflow of capital is a continuation of trends it has been following since 2012. Heather Stewart writing at The Guardian:

Manufacturing Slowdown Reaches U.S.

The global slowdown in manufacturing has reached the U.S., with a PMI of 50.2 indicating no more than a slight expansion in manufacturing activity. This is happening in spite of the tightest labor market in nearly a decade. Jason Lange writing at Reuters:

The unusual combination of increasing employment while manufacturing holds steady, essentially the same pattern found in China, lends credence to the idea of a global shift away from manufactured goods.

Official PMI Shows Contraction

China’s manufacturing sector was in contraction in September according to an official survey. PMI was 49.8 in September, indicating a continuing contraction in manufacturing activity. From Xinhua:

Similar reports in nearby countries also showed slowing manufacturing. However, the reports are not as bad as feared and shouldn’t interrupt this week’s relief rally in stocks.