June showed a marked slowdown in business activity in the US private sector, bringing worry to some analysts and investors.
Market research group ISH Markit published a report saying that its flash services purchasing managers’ index (PMI) dropped to 53.0 during June. May’s PMI was 53.6. June’s figure was a three-month low.
Analyst had been expecting a services PMI of 53.7, an indication of a stronger economy.
Since the service sector comprises about 80% of the US economy the services PMI data is a key for understanding economic growth.
The manufacturing PMI, according to Markit, also fell in June, from 52.7 in May to 52.1 this past month. Analysts were also expecting that PMI to be 53.0.
PMI values above 50 represent a growing economy, while figures below 50 indicate a shrinking economy. The overall PMI of services and manufacturing together fell to 53.0 in June from May’s value of 53.6. However, new orders climbed at their fastest rate in five months, leaving room for optimism about the US economy.
Chris Williamson of HIS Markit said that although it is likely that growth will be higher in the second quarter than it was in the first, “the relatively subdued PMI readings suggest there are some downside risks to the extent to which GDP will rebound.”
The Commerce Department announced disappointing new home sales for the month of July, worrying officials that an important source of jobs is still showing signs of weakness.
The decline in sales of new homes was 2.4 percent during the month from June to July, down to a seasonally adjusted annual rate of 412,000. In a survey conducted by the Wall Street Journal, prominent economists had predicted a yearly figure of 425,000.
New home sales have consistently refused to get out of the starting gate, staying stuck in the 2013 figures which totaled 429,000 new homes sold. In contrast the numbers for already existing homes have continued to climb, with four months in a row of better sales through July.
The reason economists focus on the strength of new home sales, despite this sector only representing 10 percent of US home buying, is because building homes usually provides high-paying, middle-class jobs.
The Japanese Finance Ministry released their figures for 2013 showing that Japan had a record trade deficit, exceeding even the previous year’s numbers.
For the first time in three years Japan posted an year-on-year rise in the value of exports, mostly caused by the continued loss in value of the yen compared to the dollar, with a simultaneous uptick in the value of imports.
Last year was the third year in a row that Japan had a trade deficit, the first time since data on this information became available in 1979. Last year’s trade deficit totaled 11.47 trillion yen ($112 billion). That number represents a giant increase of 65.3 percent over the previous year’s record of 6.94 trillion yen.
Japan’s trade with the United States is the highest for all countries and regions. The total exports from Japan to the US were up 15.6 percent, to 12.93 trillion yen. Part of that increase came from the sale of Japanese cars to US markets.
In the largest increase in over a year, the month of January saw US companies purchasing machinery and factory goods at a rate of increase of 7.2 percent over December’s figures. This number, despite fears of tax hikes and sequestration (budget cuts), registers among economists as a sign of increasing confidence in the US economy.
Increased capital purchases, especially long after the holidays have passed, bodes well for the economy, as it’s a sign that production is pushing ahead, with a hoped-for increase in jobs and decrease in unemployment.
Aircraft and defense orders are not included in these figures. If sequestration causes the Defense Department to slash its budget, then this sector could adversely affect the economy as a whole. Because orders for aircraft fell in January the total factory orders in January was really down by 2 percent.
Asian markets have seen significant gains since the beginning of 2013, with dozens of investment companies and financial firms jumping on the bandwagon to benefit from the region’s recovering economies.
This Friday’s reports revealed that Japan’s Nikkei Stock Average rose 2.9%, while Hong Kong’s Hang Seng Index increased 1.1%. The Shanghai Composite grew as well.
According to the Nikkei business daily, the central bank plans to add around $110 billion to its asset-purchasing program. Reportedly, this will be the first time that the Bank of Japan eases in two consecutive meetings in nearly a decade.
Meanwhile, Taro Aso, the Japanese Minister of Finance, has stated that the Bank of Japan and the government have not yet reached a set inflation target. Analysts believe the bank will be willing to set a 2% inflation goal, instead of the current 1% target.
Still, the region’s broader market has maintained its former levels despite recent developments. According to Andrew Sullivan, a market commentator based in Hong Kong, this is “partly due to the fact that a lot of retail money is tied up in IPOs, and institutional money is focusing on Japan as the yen weakens.”