“India’s industrial output unexpectedly slid in December for a second month as demand falters in an economy expanding at the weakest pace in a decade.

Production at factories, utilities and mines fell 0.6 percent from a year earlier, compared with a revised 0.8 percent drop in November, the Central Statistical Office said in a statement in New Delhi today. The median of 29 estimates in a Bloomberg News survey was for a gain of 1 percent.

India’s elevated inflation of more than 7 percent has limited the extent its central bank can cut interest rates to boost demand, while an uneven global recovery has hurt exports. Finance Minister Palaniappan Chidambaram, who unveils the budget Feb. 28, has pledged spending curbs to ease price pressures amid wider government efforts to encourage a revival in investment.

“This set of data is really bad and there is a need to aggressively address risks to growth,” said Rupa Rege Nitsure, an economist at Bank of Baroda in Mumbai. The report adds to the case for a reduction in borrowing costs, though the magnitude of cuts depends on the path of inflation, she said.

Prime Minister Manmohan Singh has stepped up efforts to spur the economy since mid-September, opening industries such as retail and aviation to more foreign investment and setting up a panel to speed up infrastructure projects. India has also eased caps on capital inflows and moved to limit fuel subsidies.

The rupee has risen about 2.8 percent against the dollar since then, while remaining 8.4 percent weaker in the past year. The currency was down 0.1 percent to 53.925 as of 12:49 p.m. in Mumbai, while the BSE India Sensitive Index climbed 0.3 percent. The yield on the 8.15 percent note maturing June 2022 rose two basis points, or 0.02 percentage point, to 7.88 percent.

Inflation Risks…”

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“The U.S. is no longer number one in world trade.  That title now belongs toChina, with ramifications down the road for the dollar as go-to currency for the pricing of tradable goods.

Bloomberg reported on the numbers from Beijing on Monday, Feb. 11, noting that U.S. exports and imports of goods last year totaled $3.82 trillion, according to the U.S. Commerce Department. Meanwhile, China’s customs administration reported last month that the country’s total trade in goods in 2012 amounted to $3.87 trillion, just barely toppling the U.S. off its pedestal.

China’s increasing influence threatens to disrupt regional trading blocs as it becomes the most important commercial partner for countries not only in Europe, but also far away in places like Brazil, where the U.S. has played second fiddle now for more than three years running….”

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“The world’s largest economies are set to diverge in coming months with few signs that a broad-based recovery in growth is imminent, according to the Organization for Economic Cooperation and Development’s composite leading indicators.

The leading indicators for December, released Monday, point to a pickup in growth in the U.S., Japan, the U.K. and Brazil, but suggest growth will remain weak by historic standards in many other big nations.

Economic data releases for the final three months of last year show that many developed economies contracted during the period, including the U.S., the U.K. and Germany.

The Paris-based think tank said Monday that its leading indicator of economic activity in its 34 developed-country members rose to 100.4 in December from 100.3 in November.

A reading above 100.00 means economic growth is set to be above the trend rate, which itself varies widely among large economies.

However, behind the slightly stronger overall measure, the leading indicators for individual economies point to differing fates.

“Composite leading indicators (CLIs)…show diverging growth patterns in the economic outlook of major economies,” the OECD said.

“In the United States and the United Kingdom, the leading indicators continue to point to economic growth firming,” the OECD said, while for Japan and Brazil “signs of growth picking up are emerging.”

The euro zone remains a weak spot in the global economy, although it is unlikely to slow further, it said….”

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“Sensing better times ahead, investors have pushed the Dow Jones Industrial Average up this year near its record high. But a different mood is pervading U.S. companies, where executives are less optimistic about the global economy and their own prospects, and many are lowering financial forecasts.

Fourth-quarter operating earnings topped diminished expectations, rising 7.3% at the 339 members of the Standard & Poor’s 500-stock index that have reported results, while revenue rose 5.9%, according to Thomson Reuters. But the companies warn that the current quarter will be more challenging, and analysts project first-quarter earnings at S&P companies will rise just 1.7%, Thomson Reuters says, or less than half what they were predicting at the beginning of the year.

Sixty-three S&P companies have lowered their forecasts for first-quarter earnings, according to FactSet Research, while 17 have raised them, the largest disparity since the firm began tracking the data in 2006.

Many executives see shrinking economies in Europe. Closer to home, they worry about hesitant U.S. customers, chilled by continued Washington gridlock.

In a sign of executive caution, a Wall Street Journal survey of 50 S&P companies found they plan to increase investment this year by 2%, signaling a dearth of big growth opportunities. Through the first nine months of 2012, S&P companies boosted investment 8%, following a 20% increase in 2011….”

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“Euro-area economic data due this week will probably show the damage inflicted by the region’s sovereign debt crisis with the worst quarterly decline in output for almost four years.

Gross domestic product shrank 0.4 percent in the fourth quarter, according to the median of 45estimates gathered by Bloomberg News. That would be the biggest decline since the first quarter of 2009, when GDP fell 2.8 percent in the wake of the collapse of Lehman Brothers Holdings Inc. The data is due to be published on Feb. 14.

While measures to stem the region’s debt turmoil have helped curb sovereign bond yields from Spain to Greece, at least seven countries of the 17-nation bloc are in recession, leaving 18.7 million people out of work. The European Central Bank President Mario Draghi said last week that “economic weakness” will prevail in early 2013 even as the economy shows confidence stabilizing “at low levels.”

The fourth quarter “is probably the trough of the cycle, Draghi is hopeful that it will be,” said Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. “We should see some improvement in economy in the first half of this year. The question is, whether it’s strong enough” given the risks that lie ahead, he said….”

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“The trade gap fell to a nearly two-year low in December. Good news? Well, in part — the U.S. is making strides in exporting more oil and gas, and importing less, helped by the fracking boom. In December alone, oil and gas exports surged 8.5% while petroleum imports tumbled 10.5%. But there’s also a disturbing picture of slowing growth in demand…”

Full article and charts

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“Remember that Q4  GDP report that came in at 0.1%?

It won’t stay negative.

From Nomura:

Data releases today each had a significant impact on our Q4 GDP tracking model, but on net the change was a small positive. We began the day with Q4 GDP tracking a decline of -0.1%, matching the BEA’s advanced estimate. Better-than-expected December trade data lifted Q4 tracking to 0.6%, but December wholesale inventory data pushed it back down to 0.2%.

The trade deficit narrowed sharply in December, much more so than the BEA’s original assumption in its Q4 GDP estimate. The December trade gap was the narrowest since January 2010. Exports jumped by 2.1% in December while imports dropped by 2.7%. Imports tend to reflect movements in inventories and the large inventory drawdown reported in Q4 suggested that imports had declined.”

“The U.S. trade deficit shrank in December to its narrowest in nearly three years, suggesting the economy did much better in the fourth quarter than initially estimated.

The country’s trade gap narrowed to $38.5 billion during the month, the Commerce Department said on Friday. Analysts polled by Reuters had expected a deficit of $46 billion.

That suggests the U.S. government will revise upward its advance reading for fourth-quarter gross domestic product, which showed the economy contracted at a 0.1 percent annual rate in part because of a decline in inflation-adjusted exports.

The government had released its estimate for fourth-quarter GDP before the December trade data was available. That GDP report suggested the government was projecting a wider trade deficit in December.

Friday’s data showed U.S. exports surged by $8.6 billion during the month, boosted by sales of industrial supplies, including a $1.2 billion increase of non-monetary gold. In a reflection of a boom in oil output driven by hydraulic fracturing technologies, petroleum exports rose by nearly $1 billion during the month to a record high level.

A fall in petroleum imports led overall purchases from abroad to decline $4.6 billion in December. For the entire year, the country’s imports of crude oil fell to their lowest levels since 1997 in terms of volume.

For all of 2012, the U.S. trade gap fell by 3.5 percent to $540.4 billion. Running trade deficits means the country bleeds dollars, so trade is still a drag on the U.S. economy. But rising exports are helping it to be less of a drag than in prior years.

Exports last year rose 4.4 percent….”

Full report

“German exports rose in December, capping a record year even as the sovereign debt crisis weighed on euro-area demand.

Exports, adjusted for working days and seasonal changes, increased 0.3 percent from November, when they fell 2.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 1.4 percent increase, according to the median of 15 estimates in aBloomberg News survey. Exports rose 3.4 percent in 2012 to a record 1.1 trillion euros ($1.47 trillion), the office said.

Export growth has slowed as the debt crisis damps sales within the euro area, prompting German companies to target faster-growing markets in Asia. The economy, Europe’s largest, is showing signs of recovering from a fourth-quarter slump as the debt crisis eases. Investor and business confidence improved more than forecast in January and the unemployment rate fell to 6.8 percent, matching a two-decade low.

“Strongly improved business sentiment backs our expectations of a gradual improvement throughout the first quarter,” saidAlexander Koch, an economist at UniCredit Group in Munich.

Trade Balance…”

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“China’s trade expanded more than estimated and a broad measure of credit rose to a record in a January that had five more working days than last year, helping sustain a rebound in the world’s second-biggest economy.

Exports gained 25 percent from a year earlier and imports rose 28.8 percent, government data showed today. Aggregate financing was 2.54 trillion yuan ($407 billion), including new local-currency loans of 1.07 trillion yuan that exceeded forecasts, while inflation was 2 percent.

China’s trade and credit data may indicate a strengthening economy, even as indicators in the first two months are distorted by the weeklong Lunar New Year holiday that was in January in 2012 and starts tomorrow for 2013. The new leadership, headed by Xi Jinping, is seeking to sustain a recovery without fueling inflation or spurring excessive financial risks from shadow banking and local-government debt.

“China’s growth recovery remains on track and inflation pressures remain manageable,” said Chang Jian, a Hong Kong- based economist at Barclays Plc who formerly worked for the World Bank. That is likely to add to “recent positive market sentiment,” she said.

The Shanghai Composite Index, China’s benchmark stock gauge, rose 0.6 percent. It has gained 24 percent since Dec. 3. The MSCI Asia Pacific Index of stocks fell 0.1 percent as of 6:01 p.m. in Tokyo.

M2 money supply rose 15.9 percent in January from a year earlier, the People’s Bank of China said today, exceeding the 14 percent median estimate in a Bloomberg survey of economists.

Trade Surplus…”

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“U.K. manufacturing production had its biggest monthly increase in December for five months, boosted by output of machinery and equipment and chemical products.

Factory output rose 1.6 percent from November, when it fell 0.3 percent, the Office for National Statistics said today in London. The increase was double the median forecast in a Bloomberg News survey. Total industrial production rose 1.1 percent, helped by a 3.2 percent increase in oil and gas production.

The figures suggest manufacturing gained momentum heading into the new year, easing concerns that Britain may slip back into a recession. With a survey of purchasing managers showing manufacturing activity expanded for a second month in January, the Bank of England today refrained from increasing stimulus as officials monitor inflation pressures in the economy.

“With more North Sea oil and gas production set to come on stream over the next couple of months, we anticipate another decent figure next month,” said James Knightley, an economist at ING Bank NV in London. “Furthermore, with the PMI for January also showing growth, this offers further indication that the U.K. will probably avoid the fate of dipping into recession three times in the space of five years.”

‘Slow’ Recovery…”

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“India forecast the weakest economic growth in a decade as subdued investment and elevated inflation add pressure on Prime Minister Manmohan Singh to extend policy changes and revive his development agenda.

Gross domestic product will rise 5 percent in the 12 months through March 2013, below last year’s 6.2 percent and the least since 4 percent in 2002-2003, a Central Statistical Office statement showed in New Delhi today. The median of 34 estimates in a Bloomberg News survey was 5.5 percent.

India faces inflation of more than 7 percent, one of the fastest levels in major emerging nations, limiting the extent the central bank can cut interest rates to spur expansion. The government has vowed spending curbs to damp price gains as it prepares to unveil the annual budget, part of a wider policy overhaul since September to lure capital inflows and ease bottlenecks by speeding up infrastructure projects.

“Putting out a number like this says that we need to get our act together,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. India faces a modest recovery and the government needs to maintain the push to spur the economy, he said.

The rupee is up about 4 percent against the dollar since the policy changes began Sept. 13, while the BSE India Sensitive Index has risen 9 percent. The currency weakened 0.1 percent to 53.24 per dollar as of 1:47 p.m. in Mumbai. The stock index fell 0.3 percent. The yield on the 10-year bond maturing June 2022 dropped to 7.86 percent from 7.91 percent yesterday.

Policy Changes…”

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“China’s central bank signaled concern that inflation risks will increase and said that monetary easing by nations, including the U.S. and Japan, may push up commodity prices and make global capital flows more volatile.

China must be alert to changes in price-gain expectations and to imported inflation, the People’s Bank of China said yesterday in its fourth-quarter monetary policy report. The costs of labor-intensive products, services and agricultural goods may rise persistently on slowing labor-supply growth, the PBOC said.

“An economic recovery and demand expansion may pass into CPI in a relatively fast manner,” the central bank said.

Chinese officials are trying to sustain a rebound in growth without spurring a pickup in consumer or home prices as the Communist Party completes a once-a-decade power handover. Expansion in gross domestic product accelerated in the final three months of last year for the first time in two years.

“The central bank is signaling that room for further monetary easing is quite limited,” said Chang Jian, a Hong Kong-based economist at Barclays Plc who formerly worked for the World Bank. “But it will remain flexible to accommodate the expected crackdown on shadow banking and stricter regulation of local government financing to produce a liquidity situation that is supportive of growth.”

The Shanghai Composite Index, the nation’s benchmark stock gauge, dropped 1.3 percent at the 11:30 a.m. local-time break, headed for the first decline in nine days.

Easing Pause…”

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“German factory orders rose in December as euro-area demand jumped, adding to signs that the region may be starting to recover from recession.

Orders, adjusted for seasonal swings and inflation, increased 0.8 from November, when they fell 1.8 percent, the Economy Ministry in Berlin said today. The median forecast in a Bloomberg News survey of economists was for a 0.7 percent gain. Factory orders from the euro area surged 7 percent….”

Full article

Source

“The January reading of the ISM non-manufacturing (services) index fell to 55.2 in January.

But this was a tad higher than the 55.0 expected by economists.

Any number above 50 signals expansion.

From ISM:

…This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 56.4 percent, which is 4.4 percentage points lower than the seasonally adjusted 60.8 percent reported in December, reflecting growth for the 42nd consecutive month. The New Orders Index decreased by 3.9 percentage points to 54.4 percent, and the Employment Index increased 2.2 percentage points to 57.5 percent, indicating growth in employment for the sixth consecutive month. The Prices Index increased 1.9 percentage points to 58 percent, indicating prices increased at a faster rate in January when compared to December. According to the NMI™, eight non-manufacturing industries reported growth in January. Respondents’ comments are mixed about the economy and business conditions; however, the majority of respondents are optimistic about the overall direction.” “

“Russian consumer prices rose more than economists estimated in January, advancing at the fastest rate in 15 months and bolstering the central bank’s case to resist government calls for lower borrowing costs.

The inflation rate was 7.1 percent, jumping from 6.6 percent the previous month, the Federal Statistics Service in Moscow said today in an e-mailed statement. The median estimate of 21 economists in a Bloomberg survey was 6.9 percent. Prices rose 1 percent from the previous month, topping estimates of a 0.8 percent advance.

Russia, the biggest emerging economy to raise interest rates last year, is seeking to cap inflation at 5 percent to 6 percent in 2013. President Vladimir Putin and members of Prime Minister Dmitry Medvedev’s government have said borrowing costs should be lowered to boost an economy that grew last year at the slowest pace since a 2009 recession.

“The January data may support the central bank in its dispute with the government that it’s too soon to ease monetary policy,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc. (HSBA) in Moscow, said by phone today. “I expect the central bank to lower interest rates only at the beginning of the fourth quarter, when inflation drops within the target range of 6 percent.”

Primary Concern…”

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“Australia posted its narrowest trade deficit in 10 months and home prices jumped by the most in 2 1/2 years, supporting the case for the central bank to leave interest rates unchanged today.

Imports outpaced exports by A$427 million ($446 million), led by stronger iron-ore shipments, from a revised A$2.79 billion deficit in November, the Bureau of Statistics said in a report in Sydney today. A separate report showed house prices advanced 1.6 percent in the three months through December, the most since mid-2010.

Investors are pricing in a 78 percent chance central bank Governor Glenn Stevens will leave the overnight cash-rate target at 3 percent, pausing after six reductions totaling 1.75 percentage points since November 2011. The Reserve Bank of Australia releases its first monetary policy decision of the year at 2:30 p.m. in Sydney.

“The data are pretty positive,” said Alvin Pontoh, an Asia-Pacific strategist at TD Securities Inc. in Singapore.’’ “The increase in house prices certainly supports the RBA remaining on hold.”

The Australian dollar rose to $1.0444 at 12:30 p.m. in Sydney, from $1.0442 before the data were released.

The median estimate in a Bloomberg News survey of 24 economists was for a trade shortfall of A$800 million. For the house-price report, the median forecast of 15 economists was a 0.3 percent rise.

Iron Ore, Coal…”

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“The euro rose toward the strongest level in more than 2 1/2 years versus the yen as apurchasing managers’ index showed services output in the region shrank less than initially estimated, boosting demand for the currency.

The 17-nation euro reversed an earlier decline as European stocks rallied from their biggest plunge in more than three months. European Central Bank policy makers are due to meet this week. Australia’s dollar weakened after the central bank said the inflation outlook allowed scope for further interest-rate cuts. The yen fell at least 0.6 percent against all 16 of its major peers after Bank of Japan (8301) governor Masaaki Shirakawa said he will step down earlier than previously planned.

“The final PMI readings for Europe were obviously on the stronger side of expectations, so that has provided a bit more of a boost for the euro,” said Ian Stannard, the head of European foreign-exchange strategy at Morgan Stanley in London. “The underlying trend in the euro is still up but we need to be cautious going into the ECB meeting.”

The euro rose 1.4 percent to 126.56 yen at 8 a.m. New York time. It touched 126.97 yen on Feb. 1, the strongest since April 2010. The shared currency strengthened 0.2 percent to $1.3544, after dropping to $1.3459, the lowest since Jan. 29. The yen slid 1.1 percent to 93.43 per dollar.

The JPMorgan G7 Volatility Index, calculated based on premiums on currency options, climbed to 9.3 percent, the most since Aug. 2. It had dropped to a more than five-year low of 7.06 on Dec. 18.

The shared currency may slide to $1.3350 in the days before the ECB meeting, before rising to as much as $1.40 in the following weeks, Stannard said.

Purchasing Managers

An index based on a survey of purchasing managers in the services industry rose to 48.6 from 47.8 in December, London- based Markit Economics said in a report today. That’s above an initial estimate of 48.3 published on Jan. 24. A reading below 50 indicates contraction. A composite index of factory and services output increased to 48.6 from 47.2….”

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“WASHINGTON (Reuters) – A gauge of U.S. business investment plans dropped in December, a possible sign companies were losing confidence in the economy’s strength due to fears over tighter fiscal policy, government data showed on Monday.

The data from the Commerce Department also gave some positive signals, with a big jump in defense industry orders suggesting some of the surprise fall in U.S. economic output late last year was poised to reverse.

Many economists have expected businesses to invest more timidly because of uncertainty overgovernment spending cuts and tax increases, which had been scheduled to kick in last month. Congress ultimately struck a last-minute deal to avoid or postpone many of the austerity measures.

Signs of any blow to confidence have been difficult to discern from economic data, but Monday’s data provided a hint of weakness in December.

The government issued a revised estimate for capital goods orders outside of the defense and aircraft industries, showing they edged 0.3 percent lower in December.

Previously, the government had estimated this closely watched proxy for investment plans had gained 0.2 percent during the month.

U.S. stocks opened lower on Monday, while U.S. Treasuries prices rose.

Overall factory orders rose 1.8 percent during the month. That was below the median forecast of 2.2 percent by analysts polled by Reuters.

Outside of the transportation industry, growth in factory orders rose a meager 0.2 percent in December, with new orders for consumer goods down 0.1 percent.

More volatile components helped make up for that softness, with civilian aircraft orders up 10.1 percent….”

Full article

“One of the challenges in life is to know the difference between a cyclical slump and a transformation that will permanently change a business, industry, economy, lifestyle, living standard, a family’s prospects or the future of a nation-state.

Harvard Professor Clay Christensen explained the difference, in the business world, with his 1997 breakout book “The Innovator’s Dilemma”. I interviewed him at Harvard in 2005 about his theory of disruptive innovation and how the failure to recognize the dangers, and opportunities, in changing circumstances have devastated many industries from steel to retail, telecoms, the media and others.

All these sectors failed to recognize the signs or patterns that revealed the fact that changes were permanent and required recalibration and reframing of the industry, business and mentalities of all involved.

Last week in Davos, Professor Christensen elaborate his theory to include macro-economics and markets. As with the invention of the PC or Internet or mini steel mill, the current economic conditions are transformative and require recalibration and reframing of strategies, policies and political judgment.

He calls it the “capitalist’s dilemma” and said that the relatively jobless economic recovery in the U.S. and elsewhere is the new normal, and presents serious political and social consequences. Some 204 million people remain unemployed worldwide, in large measure due to the 2008 meltdown, but there are other reasons, he pointed out.

“Whatever happens on Election Day,” wrote Christensen in the New York Times just before the voting, “Americans will keep asking the same question: When will this economy get better?”

Christensen is not an ideologue. He analyses facts, not opinions, and has figured out why low or no interest rates on capital has caused a timid recovery with mediocre job growth. The old paradigm was that give away cheap money and the enterprising, and enterprises, will innovate and create jobs and gobs of economic activity.

Perhaps the sluggishness is due to the fact that trillions in debts are being paid down after America’s spending binge. But that’s only a small part of the story, he said. Trillions remain on the sidelines earning low interest, or invested in stock markets with hedge funds.

“Even if there is robust growth there won’t be job creation,” he said.

This is because the challenge is not framed properly. Policymakers must differentiate – by providing tax or other incentives — between three categories of innovation in other to “unlock the type of innovation capital” that creates real wealth for an economy or industry or business….”

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