French business surveys suggest welcome resilience

Chris Scicluna
Emily Nicol

Japanese exports boosted in September by easing of supply constraints
Today’s Japanese trade figures tallied with the recent supply-induced improvement in manufacturing, with a pick up in the value of exports (3.2%M/M, 28.9%Y/Y) and modest easing in imports (-0.6%M/M, 45.9%Y/Y) leaving the goods trade deficit in September (¥2.0trn) narrowing very slightly from August’s record high (¥2.3trn). Amid strong demand from elsewhere in Asia, US and EU, the recovery was driven by an acceleration in shipments of autos (122%Y/Y), while exports of semi-conductors were also up by about a fifth. When adjusting for seasonal and price effects, the BoJ’s measure of export volumes were up 1.7%M/M in September, to leave them up 3%Q/Q, the strongest quarterly growth since Q420. And with import volumes up 2½%Q/Q, today’s report suggests that net trade provided (an admittedly modest) boost to GDP growth in Q3 for the second successive quarter.

French business surveys suggest welcome resilience, despite retail sector weakness
Some French business survey results published this morning were a touch better than expected, suggesting welcome resilience in the euro area’s second-largest member state despite ongoing pressure on household budgets and concerns about both energy prices and supply. Indeed, the latest INSEE business survey reported broadly stable conditions at the start of the fourth quarter, with the headline business climate index unchanged above its long-run average at 102. Conditions in services were judged to have deteriorated only slightly, led by a post-summer weakening in hospitality. But despite a weakening in foreign demand, conditions in manufacturing were judged to have improved a touch following three successive months of weakness and firms in the sector pointed to a continued desire to invest. However, contrary to indications from other surveys, industrial firms also reported a deterioration of supply bottlenecks, with almost half of businesses in the sector suggesting that they would not be able to increase production if orders picked up. Indeed, expectations for future production deteriorated. Meanwhile, despite rising interest rates, construction firms were decidedly upbeat.

According to the INSEE survey, however, confidence in the French retail sector remains weak, albeit also a touch improved from September. Certainly, the outlook for sales is still judged to be firmly negative while selling price expectations rebounded on cost concerns. Admittedly, the INSEE survey suggested that retailers had revised up their assessment of past sales. And the Bank of France’s latest retail survey, also published this morning, suggested that sales picked up at the end of Q3. Indeed, the BoF survey measure of sales rose an impressive-looking 2.2%M/M, benefiting from a surge in sales of new cars (10.3%M/M), consumer electronic items (9.0%M/M), furniture (8.8%M/M) and clothing and textiles (4.6%M/M). However, that growth followed weakness at the end of Q2 and early in Q3. So, over the third quarter as a whole, the BoF estimated that sales fell 1.4%Q/Q, with sales of manufactured goods still down a chunky 2.7%Q/Q but food sales down a much smaller 0.4%Q/Q.

German PPI inflation moves sideways at a series high, as producer inflation of consumer goods rises further
While today’s German PPI release reported another strong increase in manufacturers prices in September, the 2.3%M/M rise was roughly a quarter of the surge in August. And so the annual rate of PPI inflation moved sideways last month at a series high of 45.8%Y/Y. Despite easing slightly from August, more than two-thirds of the annual rate continues to be accounted for by energy, with industry paying more than two and half times for natural gas than they did a year ago. There was, however, a further moderation in pressures in prices of intermediate goods, with the annual rate down 0.7ppt to 16.8%Y/Y in September, a fourteen-month low and more than 9ppts lower than April’s peak. And capital goods inflation moved sideways in September. But producer price inflation of consumer goods rose a new series high (17.3%Y/Y), as manufacturers continue to pass on higher cost burdens despite a slowing in demand.

Euro area current account deficit likely to have widened to a new high
This morning will bring the release of the ECB’s balance of payments data for August. In July, the euro area’s current account deficit widened to a new record of €20bn, up from €4bn the previous month, as high energy prices resulted in a surge in the value of imports. National data, as well as natural gas price shifts, point to a further widening in the deficit in August.

US existing home sales likely to drop for eighth successive month
Today will bring the final US economic data of note for the week in the shape of September’s existing home sales numbers as well as the Conference Board leading indicators for the same month, the October Philly Fed survey and usual weekly jobless claims data. Following yesterday’s very weak housing starts data, and also in light of the ongoing slump in mortgage applications and pending home sales, an eighth successive drop in existing home sales seems likely today. Our colleagues in Daiwa America predict a drop of 1.0%M/M. With respect to Fed-speak, Philly Fed President Harker will discuss the economic outlook.

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