| France Sinks Further Into Gutter; PMI Accelerates to 4-Year Low; "Core" of Europe Now Consists of Germany Only Posted: 21 Feb 2013 12:19 PM PST While laughing at the amusing exchange of letters between the CEO of Titan and Arnaud Montebourg, Minister of Industrial Renewal of France, I awaited the latest PMI report on France, expecting findings to be horrific. The PMI reports are out today, and inquiring minds will note the Markit Flash France PMI shows the decline in French private sector output accelerates further to reach near four-year record. Key points:
- Flash France Composite Output Index drops to 42.3 (42.7 in January), 47-month low
- Flash France Services Activity Index falls to 42.7 (43.6 in January), 48-month low
- Flash France Manufacturing PMI climbs to 43.6 (42.9 in January), 2-month high
- Flash France Manufacturing Output Index rises to 41.2 (40.8 in January), 2-month high
Summary:
Latest Flash PMI data indicated that the downturn in French private sector output deepened in February. January's Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped from 42.7 in January to 42.3, its lowest reading since March 2009.
The steeper fall in overall output was driven by an accelerated decline in the service sector where activity contracted at the fastest pace in four years. Manufacturers signalled a slightly slower decrease in production compared with one month previously, albeit still sharper than signalled in the service sector.
New business placed with private sector companies in France fell again in February, extending the current sequence of contraction to one year. The rate of decline quickened slightly since January and was only marginally slower than December's 45-month record.
Service providers indicated that new business fell at the sharpest rate for just under four years. Survey respondent s commented that difficult business conditions and intensifying competitive pressures had conspired to depress inflows of new work. France Economic Output  Expect GDP to follow the PMI far more than economists expect. Eurozone Aggregate PMI The Markit Flash Eurozone PMI shows steepening downturn in February. Key Points:
- Flash Eurozone PMI Composite Output Index at 47.3 (48.6 in January). Two-month low.
- Flash Eurozone Services PMI Activity Index at 47.3 (48.6 in January). Three-month low.
- Flash Eurozone Manufacturing PMI at 47.8 (47.9 in January). Two-month low.
- Flash Eurozone Manufacturing PMI Output Index at 47.5 (48.7 in January). Two-month low.
The Markit Eurozone PMI® Composite Output Index fell to 47.3 in February from 48.6 in January, according to the flash estimate. The decline signals a steepening of the economic downturn, contrasting with the easing trend seen in the previous three months. Business activity has now declined throughout the past year-and-a-half, with the exception of a marginal increase in January last year.
Output rose for the third month running in Germany, albeit at a slower rate, contrasting with accelerating, steep rates of decline in both France and across the rest of the Eurozone on average. French businesses were particularly weak, reporting the largest monthly drop in output since March 2009. Outside of France and Germany, the rate of decline was the fastest for three months, though it was weaker than the downturn seen in France.
New orders fell for the nineteenth month running, with the rate of decline gathering pace having eased to the weakest for 11 months in January. However, the overall rate of loss in February remained less steep than that seen throughout much of 2012.
Chris Williamson, Chief Economist at Markit said: "A steepening rate of decline in February is a disappointment, and suggests that the eurozone is on course to contract for a fourth consecutive quarter in the first three months of the year. Digging into the data shows increasing schisms within the eurozone. National divergences between France and Germany have widened so far this year to the worst seen since the survey began in 1998. Germany is on course to grow in the first quarter, recovering from the 0.6% GDP fall seen in the fourth quarter, possibly expanding by as much as 0.4%. In contrast, France's downturn is likely to deepen, bringing the euro area's second-largest member more in line with the periphery than with the now solitary-looking German 'core'." "Core" of Europe vs. Periphery  Recall that the "core" of Europe was once Germany, France, and Italy. Italy went down the tubes long ago and the "core" became Germany and France. The "core" is now Germany. Rotten to the Core Last month the eurozone composite PMI rose from 47.2 to 48.6. Chris Williamson, Chief Economist at Markit offered this interpretation: " The eurozone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilisation in the first quarter." I offered a completely different interpretation on February 7 in Illusions of Stabilization. No Signs of Healing
I disagree with Williamson. Those divergences show the eurozone is getting sicker, not healing.
If there was any healing, and certainly if there was any rebalancing, manufacturing and export growth would be picking up in Spain, in Italy, and in France at the expense of Germany. Illusion of Eurozone Stabilization There is no real stabilization and there is no healing. Rather, the policies of Hollande are so disastrous that some output has shifted to Germany and elsewhere, (coupled perhaps with some inventory replenishment and a temporary stimulus-fueled increase in demand in Asia). Even that cannot last. How can it? US growth has stalled (at best) and 2% payroll tax cuts will tip the US into recession (assuming it's not there already). With employment sinking in France, Italy, and Spain, precisely who will buy German exports? Properly rebalancing will require a shift in production from Germany to the rest of Europe as well as a shift towards more consumption in Germany from the rest of Europe. That cannot and will not happen with the destructive polices of Hollande, and the lack of reforms in Spain and Italy. Something has to give. And it's something very few people see coming. Germany Will Pay a Steep Price One way or another Germany will pay a huge price. These are the only two eurozone recovery options - Germany gives (not lends) more bailout money to the rest of Europe
- The eurozone breaks up
Until one of those things happens, signs of stabilization are nothing but an illusion. There are no other options, and no other choices. Meanwhile, imbalances grow and German taxpayers keep funneling tax dollars to the Southern states to keep them afloat. How long German citizens are willing to put up with this sorry state of affairs remains to be seen. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| House Subcommittee on Economic Growth Demands Answers From Bernanke on Fed's Exit Strategy; Fed Must Reply by March 5 Posted: 21 Feb 2013 09:59 AM PST In a long overdue, yet surprising move, Jim Jordan, chairman of the House Subcommittee on Economic Growth demands answers on Bernanke's exit strategy. Rep. Jim Jordan (R-Ohio) is demanding that Federal Reserve Chairman Ben Bernanke explain exactly how he plans to wind down the Fed's massive portfolio once its run of bond buying comes to an end.
In a letter sent to Bernanke on Wednesday, Jordan asked for any research the Fed has done on unwinding its burgeoning portfolio, which recently topped $3 trillion — three times its size in 2008, the lawmaker noted.
Minutes of the Fed's January meeting, released Wednesday, showed Fed officials were struggling with when exactly they should stop the bond buying. Several members of the Fed's policy-setting committee warned that the central bank may have to begin varying the amount of bond purchases in response to economic conditions, while some warned that the Fed might have to halt the purchases before the labor market is back to the desired strength.
Jordan asked Bernanke to provide all "public and non-public" research done on possible approaches to unwinding. The Fed must provide answers by March 5. Full Text of Letter Fox Business News has the Full Text of Letter to Ben Bernanke From Jim Jordan. The letter is in image form. Here is a snip that I typed by hand. Dear Chairman Bernanke:
...As the Federal Reserve System continues its bond-buying program into 2013, I am troubled by the corresponding effect that the Federal Reserve's expanding portfolio could have on current and future growth...I am especially concerned that the historically low interest rates brought on by the Federal Reserve's monetary policy have hampered economic growth by distorting traditional financial incentives. Younger Americans who have been working to save their income have faced meager returns in bank accounts slowing their overall accumulation of wealth. Likewise, older Americans living off interest-bearing accounts have been forced to move to riskier investments to maintain their standards of living. Most strikingly, by maintaining low interest rates, the Federal reserve has distorted the real cost of the national debt, effectively incentivizing the U.S. government to borrow and overspend. .... Inquiring minds may wish to read the entire letter. I wholeheartedly applaud this effort by Jordan, and I also applaud the action date of March 5. I especially endorse two ideas above - Fed policies have "distorted traditional financial incentives"
- By maintaining low interest rates, the Federal reserve has distorted the real cost of the national debt, effectively incentivizing the U.S. government to borrow and overspend.
Fed policies have destroyed those on fixed income for the benefit of the banks and wealthy, as I wrote on Wednesday in Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else). Inquiring minds may also wish to read Hello Ben Bernanke, Meet "Stephanie", my response to a reader on fixed income attempting to live on Social Security plus interest on a $16,000 CD. Any clear-thinking person realizes the Fed has no exit strategy and thus will hold on to all or nearly-all of those assets for the full duration of their term. Thus, it will be interesting to see what lies Bernanke comes up with in response. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More  |
| Montebourg Translation: In Praise of France, Obama, US; Hidden Insults Posted: 21 Feb 2013 12:18 AM PST The story of an "incredible letter" from Maurice Taylor, CEO of Titan, to Arnaud Montebourg, Minister of Industrial Renewal of France starts with a question Taylor asked Montebourg: "How Stupid Do You Think We Are?" In his letter, Taylor blasted French workers, French unions, and he also threw in a side insult directed at the USA. A day later, Montebourg, responded with his own set of insults directed at Titan, but the response was in French. In Montebourg Responds, Cites Normandy Landings and Barack Obama I asked readers for a translation of Montebourg's reply to Taylor. Reader "NP" quickly stepped up to the plate and provided this translation. Sir,
Your insulting and extremist words show a complete ignorance of France, its competitive advantages, as well as its worldwide acknowledged attractiveness and its links with the United States of America.
France is proud to welcome on its soil more than 20,000 foreign companies, representing close to 2 million jobs, a third of its industrial exports, 20% of its private R&D, and 25% of its manufacturing jobs. Every year, we count 700 decisions of investments creating jobs and value in France. And this solid attractiveness does not weaken, on the opposite every year it becomes stronger.
Within those foreign investments, the United States rank at the top. 4200 subsidiaries of American companies employ about 500,000 people. The presence of American companies in France is very old : Haviland since 1842, IBM since 1914, Coca-Cola since 1933, General Electric since 1974. And how many others. Those links are every year renewed: In 2012, companies such as Massey-Ferguson, Mars Chocolate, and 3M have chosen to increase their presence in France.
What are the decisive factors in those investment choices? Foreign companies seek in France quality infrastructure, an enjoyable life-style, and an energy among the most competitive in Europe, as well as an environment very favourable to research and innovation. But above all, far from your ridiculous and disparaging remarks, all of those companies know and appreciate the quality and productivity of the French workforce, the commitment, know-how, talent and skills of French workers.
To amplify this attractiveness, the French government has recently taken 35 steps within the framework of the National Pact for growth, competitiveness and employment. Among those, tax credit and employment lightens by 6% companies' employment costs between 1 and 2.5 SMIC [ie: SMIC French minimum wages]. Furthermore, the unions have just stroked an agreement on job security, which illustrate the quality of social dialog [French buzzword for negotiation between unions & corporations] in France, and how important it is for my government.
May I remind you that Titan, the company you manage, is 20 times smaller than Michelin, our French internationally famous technological leader, and is 35 times less profitable. This shows how much Titan could benefit and profit enormously from an investment in France.
France is especially proud and happy to welcome American investments as both our countries are bound by an ancient and passionate friendship. Do you even know what La Fayette did for the United States of America? For our part, we French, shall never forget the sacrifice of young American soldiers on the Normandy beaches to deliver us from Nazism in 1944. And, as you choose to criticize your own government in the letter you addressed to me. I have to tell you how much the French government admires the policies set up by president Obama. As the minister in charge of Industry, I am especially impressed by his actions in favour of the relocation of manufacturing jobs in the United States, and of radical innovation. Actually, our current policy exhibits a certain closeness with that inspired by your president.
You evoke your intention to exploit the workforce of certain countries to flood our market. I have to tell you that this unethical and short-term calculation will sooner or later hit the just reaction of the states. That is already the case for France and its increasingly numerous allies within the EU that plead for trade reciprocity and are organizing a response against dumping. Meanwhile, rest assured that you can rely on me to encourage the relevant services to check your import tires with increasing zeal. They shall be especially careful regarding the respect of social, environmental and technical norms.
Arnaud Montebourg Hidden Insults NP added a few of his own thoughts ... Government is traditionally standing in the way of business in France. Only big companies can get by. Note how Montebourg very indirectly tells Titan "You're so small so we don't give a damn". Also note the crusading rhetoric towards the end.
When Carlos Ghosn (Renault CEO) told the Hollande administration "Governments should try to determine why consumers are not buying cars" it's almost certainly a jab taken at the government.
Ghosn really meant "Government should face the fact that collapsing demand is due to their misguided policies". That was a classic French "hidden insult". "NP" was referring to my January 17 post European Car Demand Near 20-Year Low; Peugeot Workers Shut Down French Plant) when I wrote ... Renault's CEO Proposes Study to Determine Why Consumers Are Not Buying Cars
No doubt you are laughing right along with me in response to an inane suggestion by Renault's CEO.
When asked what governments and companies could do to address the contraction of the market in Europe, he responded "Governments should try to determine why consumers are not buying cars."
Is it the responsibility of government to figure out why Renault and other carmaker's cannot sell cars, or is that the responsibility of carmakers?
The answer is obvious, and so is the answer to the original question. The comment by Renault CEO was so ridiculous, I should have recognized it for sarcasm (or as "NP" describes it "a classic hidden insult"). Thanks "NP"! Thanks also to others who provided translations including "JF" and "PR". I took the first translation I came across and it also happened to have interesting comments on a form of French sarcasm. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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