Japan Machinery Orders Fall 13%, Median Expectation Was 1.7% Decline

Bloomberg reports Japan Machinery Orders Fall 13% in Sign of Limits on Investment.

The decline from the previous month, announced by the Cabinet Office today in Tokyo, compared with the median estimate in a Bloomberg News survey of 26 economists for a 1.7 percent fall.

Today’s data are a reminder that business investment will not drive the recovery, said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong.

“Looking ahead, we expect accelerating consumption, residential and public investment,” Devalier said. Devalier cautioned against reading too much into a single month of “very volatile” data.

I understand the caution about volatility of large orders, but the rest of what Devalier says is suspect.

Have demographics suddenly changed? The answer to that question is clearly “no”, so what reason is there to believe residential investment will be on the rise?

What about public investment? Japan has a debt-to-GDP ratio approaching 250%, and that is the highest ratio of all developed nations. Japan achieved that dubious distinction because it squandered money on “public investment”.

Since stupidity often strikes multiple times, I would not totally rule out a surge in public investment, however, I rather doubt it’s coming. Recall that Japan’s government currently seeks massive tax hikes to pay for what it has already squandered. Moreover, Japanese citizens do not want those hikes. Would they stand for more hikes for more bridges to nowhere?

Accelerating consumer consumption? Why?

I suspect Devalier believes Keynesian claptrap that rising prices are a good thing, but I beg to differ. People do not in general buy things just because the price is going up (there is only so much space to store things). Nor do people avoid buying things simply because prices are falling. If the latter was the case, no one would have bought a computer or a flat screen TV for years.

If Japan gets the price inflation it seeks, but exports do not rise enough to pay for rising energy costs, Japanese savers will be royally screwed (but the stock market may do well, especially in nominal terms).

Stock market aside, this is a very dangerous situation Japan is in, and for the nation as a whole, it’s highly likely to end badly.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Japan Machinery Orders Fall 13%, Median Expectation Was 1.7% Decline

Guest Post: Personal Incomes & The Decline Of The American Saver

Submitted by Lance Roberts of StreetTalkLive,

The latest report on personal incomes and outlays showed the expected collapse in personal incomes post the pre-fiscal cliff surge.  However, the reversion was more than expected.  Today"s charts of the day present the effects of both the reversion in incomes, post the special yearend payouts to avoid the impact of higher taxes, and the impact of the payroll tax increase.

The first chart shows real (inflation adjusted) personal incomes.  The effect of the surge in payrolls due to concerns over the "fiscal cliff" is clearly shown, as well as, the subsequent reversal in January as real incomes slid by a whopping 3.6% or $ 437 billion. 

The next chart shows the breakdown of those contributions to incomes.  Not surprisingly, the largest factor was in "special dividends" that were paid out at a 15% tax rate on fears that taxes on dividends would rise to as much as 40%.  However, these "special dividends" were primarily paid to those evil "one percenters" which are primarily businesses owners who extracted capital from the businesses.

Not surprisingly, real personal consumption tracks real incomes, and with the sharp drop in income in January, higher payroll taxes, and a sharp rise in gasoline prices, it is very likely that real personal consumption will show a larger than expected decline in February.

The reality, as we discussed recently, is that consumers really are not deleveraging their balance sheets much at all.  Outside of mortgage debt which has fallen due to foreclosures, write downs, forgiveness, bankruptcies and refinancing – revolving credit has continued to rise.  The problem with this is that revolving credit comes at much higher interest rates and the debt service payments continue to erode living standards due to stagnant incomes. 

This is clearly seen in the declining trends of personal consumption expenditures.  The annualized percentage change in PCE has now fallen to levels that have normally been seen during recessionary periods.  Despite trillions of dollars of injections, supports and bailouts personal consumption clearly peaked in 2011, and like the majority of all most every economic indicator, has been waning since.

If we put all of this together we can see a picture of the average American.  The chart below shows the annual change in personal incomes combined with the annual change in personal expenditures.  What is clear is that consumption has been supported by rising transfer receipts (welfare) and a drop in the personal savings rate which is now at the lowest level since just prior to the last recession.  The consumer is clearly struggling to maintain their current standard of living and all indications are that they are going to lose this battle.

While the chart above is a bit cluttered what is important to understand is that the world changed in 1980.  Deregulation of the finance industry, combined with continually falling interest rates, allowed for easier, more pervasive, use of credit.  This allowed for a higher standard of living, an explosion of investment and a massive surge in productivity due to the technological revolution.  However, the shift from manufacturing and production, high economic multipliers, to a finance and service, low multipliers, based economy led to a steady decline in the rate of increase in incomes.  The illusion of wealth, spawned by lower interest rates and easy access to credit, which allowed for excess consumption through leverage drained the average American"s ability to save. 

It is crucially important to understand the impact of low savings rates on economic growth.  The reason, that despite all of the government"s best attempts, that economic growth and employment remains weak can be directly attributed to still high leverage ratios for consumers and low savings rates. 

It is only when debt levels fall to sustainable levels, and savings rates rise, that the economy can begin to function normally again.  The Federal Reserve"s continued endeavors at the flooding the system with liquidity to induce employment continue to fail because such programs do not positively impact the ability of the end consumer to create increases in aggregate end demand.  Ultimately, it is only production and employment that can achieve that goal. 

So, while "QE to Infinity" will likely continue to push asset prices higher, at least until the next financial bubble pops, higher asset prices only benefit a small portion of the overall economy.  For the rest of America the struggle to maintain their declining standard of living continues as the impact of continued weak economic growth and high levels of real unemployment continue to take their toll.

 

Zero Hedge

Guest Post: Personal Incomes & The Decline Of The American Saver

Asian shares decline on deadlocked Italy election

1 of 8. Visitors cast their shadows on the logo of the Tokyo Stock Exchange, prior to a ceremony marking the end of trading in 2012 at the Tokyo Stock Exchange in Tokyo December 28, 2012.

Credit: Reuters/Kim Kyung-Hoon

By Chikako Mogi

TOKYO | Tue Feb 26, 2013 12:36am EST

TOKYO (Reuters) – Asian shares took their lead from overnight plunges in global equities to fall on Tuesday as an apparently inconclusive election outcome in Italy raised fears of a resurgent euro zone debt crisis.

Italy’s centre-left coalition will win a majority in the lower house of parliament but the upper house will be deadlocked, the Interior Ministry said on Tuesday after almost all votes were counted. No party or coalition won a majority of seats in the Senate, which a government would need to pass legislation.

A split parliament in the euro zone’s third-largest economy is seen as likely to paralyze any new government and potentially reignite the euro-zone debt crisis.

“There’s a possibility that the Italians might be heading back to the polls. In the short term, investors and traders don’t like the uncertainty,” said Ben Le Brun, market analyst at OptionsXpress in Sydney.

The yen and the euro stabilized while London copper and gold gained, and Asia’s overall equities losses were limited compared to their global peers, such as U.S. benchmark Standard & Poor’s 500 Index .SPX which suffered its worst one-day percentage decline since November 7 with a 1.8 percent tumble on Monday.

The MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5 percent. Australian shares .AXJO fell 0.7 percent, South Korean shares .KS11 eased 0.4 percent while the Philippines stock market .PSI plunged 1.2 percent after a record finish on Monday.

“There’s an argument going on among traders at the moment. Was the Italian election result a cause or an excuse for something the market wanted to do? Because the market has run so hard we were due for a pull-back,” said Michael McCarthy, chief market strategist at CMC Markets. Australian shares last week scaled a 4-1/2-year high.

The yen resumed its retreat after firming sharply on Monday when nervousness about Italy exposed the yen to sharp reversals from its recent steep losses on bets of aggressive reflationary monetary policy in Japan.

The yen traded down 0.6 percent against the dollar at 92.35 after gaining 2 percent to a three-week high of 90.85 on Monday from its intraday low of 94.77 touched earlier in the day, its lowest since May 2010. The yen was also down 0.5 percent against the euro to 120.87 after jumping more than 3 percent to 118.74 on Monday from its day’s low of 125.36.

Traders said the plunge in the dollar and the euro against the Japanese currency has provided fresh opportunities to buy these currencies against the yen, with many market players still seeing a weak yen trend continuing.

But the euro’s rebound was limited, putting the single currency near its more than six-week low of $ 1.3047 hit on Monday on jitters about political gridlock in Italy hampering the country’s efforts to reform and slash its debts.

“Uncertainty over the Italian election outcome and its impact will certainty keep the euro under strong pressure for some time,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

“A safety net has been provided over the past year in the euro zone and given the size of Italy’s economy, I doubt that the situation will turn into a disaster, but we need to carefully monitor developments. It revives memories of risks in the euro zone,” Saito added.

The focus will now be on an Italian treasury bill auction on Tuesday when borrowing costs could rise, given the Senate election result.

The yen’s overnight appreciation hit Japan’s Nikkei stock average, with the index .N225 declining 1.4 percent after closing at a 53-month high the day before. .T

Investors also await testimony later in the day from Federal Reserve Chairman Ben Bernanke for further clues of when the Fed intends to slow down or stop its bond-buying program.

Financial markets were rattled last week by minutes of the Fed’s January meeting showing some Fed officials were mulling scaling back its strong monetary stimulus earlier than expected.

“Bernanke’s testimony will likely drive global market sentiment tonight, as markets wait for clues on the Fed’s exit strategy for its bond-buying stimulus program. Our house view is that Bernanke will remain dovish,” ANZ said in a note.

Ahead of Bernanke’s appearance, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said on Monday that U.S. economic growth could surpass expectations this year, but an anemic labor market requires ongoing support from monetary policy.

The United States also faces downside risks to its economy if $ 85 billion in government-wide “sequestration” spending cuts go ahead on March 1.

U.S. crude slid 0.6 percent to $ 92.54 a barrel and Brent fell 0.5 percent to $ 113.86. <O/R>

Spot gold inched up 0.2 percent to $ 1,596.56 an ounce.

(Additional reporting by Manolo Serapio Jr in Singapore and Thuy Ong in Sydney; Editing by Eric Meijer)

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Reuters: Business News

Asian shares decline on deadlocked Italy election