Global Economics will be taking the December 21 week off.

Next article will be dated Thursday, December 31, 2020.

Introduction

The interim between the near-term and the medium-term, between rising Covid destruction and the prospect of a vaccinated global economy, is feeling like a long haul indeed. Winding down a year to forget does see China rising strong, Europe perhaps improving but the US and Japan not improving at all. This week's article compares and contrasts the latest definitive updates from the major economies on industrial production and retail sales as well as advance indications on how December is generally shaping up.

The Global Economy

Supply and demand

Tuesday's Chinese data were highlights of the week with industrial production holding steady near pre-pandemic rates of annual growth and retail sales extending their improvement and also near where they were at this time last year, just before restrictions began to shutdown the Chinese economy in January and February. Production volumes were up 7.0 percent year-over-year in November versus 6.9 percent in both October and September with manufacturing volumes up 7.7 percent and led by stronger growth for communication equipment, chemicals, and electric machinery. Offsetting the manufacturing gains was slowing for utilities output, to 4.0 percent from 5.4 percent growth, and also mining output which has been hit especially hard everywhere by the pandemic, up 2.0 percent on the year. Retail sales in China accelerated more strongly in November though the rate of annual growth, up 7 tenths to 5.0 percent, is still sizably below production. Spending on communications equipment surged in the month accompanied by stronger growth for home appliances, cosmetics, as well as building and decoration materials.

Eurozone industrial production was posted on Monday to complement the continent's retail sales data released earlier in the month. Retail sales growth is above where it was before the pandemic shutdowns hit Europe in March and April, in contrast to industrial production which was already in contraction before the pandemic appeared and where, a little deeper still, it remains. Year-over-year production did improve in October to minus 3.8 percent from minus 6.3 percent but was still 3.5 percent below February. But there was good news including output of capital goods which rose strongly as did intermediates and consumer durables. Sizable improvement was led by Germany and also included gains for France, Italy and Spain with smaller states also posting respectable advances. Previously released retail sales data for October showed surprisingly solid improvement led by food, alcohol and tobacco and including electrical goods and furniture. Here France led the improvement followed by Germany. Yet unlike China where reports of new Covid cases are limited, cases in Europe accelerated in November and have been followed by new restrictions during December, outcomes that are certain to hold down general activity across the continent.

Unlike China where production is accelerating, and unlike Europe where production has been improving, production in the US continues to struggle noticeably. Year-over-year contraction in November deepened by 5 tenths to 5.5 percent and was still 4.9 percent short of where industrial production was in February. Manufacturing contraction is less severe, falling another 2 tenths to 3.5 percent despite improvement for vehicles and also aircraft where output was only 0.9 percent short of where it was in February. Yet this latter comparison is skewed by 737 trouble that preceded the pandemic and that had already swept aircraft lower: compared to November last year, aircraft output was down 15.4 percent. Mining (which includes energy production) has been very hard hit, down 12.8 percent from February.

Sales in the US have actually outperformed China and Europe though November saw a wide reversal, reflecting increasing Covid restrictions and the fading of government emergency support. Retail sales, which here to keep comparisons with China and Europe comparable exclude food services (restaurants), fell sharply in the month though annual growth came in at 7.1 percent, though down sharply from 8.3 percent in October. Details in November were nearly uniformly weak, especially declines for clothing & accessories, electronics & appliances, general merchandise and both vehicles and gasoline. Note that US retail sales are measured in dollar terms while reports from China and Europe are in volume terms though resulting distortions are limited as consumer inflation in the latter two is running right at or fractionally below zero. Note that the accompanying graph tracks November last year to December this year, the latter yet to be filled in which takes us to our next chapter.

Purchasing managers' indexes

The week also saw a run of flash indicators on what to expect for coming data such as industrial production or retail sales. These are from purchasing managers' surveys, which are not definitive but anecdotal and where the comparison turns entirely to month-over-month, that is these surveys ask respondents to evaluate this month's activity against last month's activity. PMIs from the US are indicating that December's activity is slowing compared to November: that monthly growth in November will prove slower than monthly growth in December and, for comparison with the prior graph, may well suggest that year-over-year comparisons could also erode. The manufacturing sample, at a headline of 56.5 in December versus 56.7 in November, tracks the great bulk of industrial production (excluding mining and utilities) with respondents reporting general growth yet contraction in export orders, slowing in backlogs and in employment, and substantial supply disruptions tied to Covid restrictions and leading to steep increases in prices paid to suppliers. PMI services, at 55.3 versus November's 58.4, track retailers but also service providers such as accommodation and leisure which have been heavily hit by the pandemic as well as health care, insurance, information technology, managerial services, etc. Here December's story is not favorable, including slowing for orders and employment and also surging costs tied to delivery troubles.

December's flash PMIs from Europe, in contrast to the US, were comparatively upbeat, showing monthly acceleration for manufacturing and improvement for services as well. Manufacturing rose to 55.5, a 2-1/2 year high and nearly 2 points stronger than November's 53.8. And services, though under the breakeven 50 line at 47.3, jumped nearly 6 points following the impact of shutdowns in November. Orders for the two samples combined rose for the first time since September with solid growth in manufacturing helped by a reduced decline in services. Exports were notably robust. Stronger demand was reflected in the smallest drop in backlogs since February which, in turn, accommodated the least significant decrease in employment since last December. In addition, positive news on Covid vaccines lifted year-ahead business expectations to a nearly 3-year high in manufacturing and a more than 2-year peak in services. Regionally, Germany and France saw better performances with other countries also showing improvement.

There are no flash PMIs available for China, at least not yet, only month-end readings the last of which were for November. But there is a flash report for another major Asian economy, Japan, and here little change at marginally contractionary rates is once again the result. Pandemic effects remain substantial in Japan with both manufacturing, at 49.7, and services, at 47.2, still under 50 in December. Respondents to the manufacturing survey reported a smaller decline in new orders and output which were positives, but a bigger decline in new export orders and weaker ‒ not stronger ‒ confidence about the outlook. Service sector respondents reported bigger declines in new orders, output, and employment, and also weaker sentiment about the outlook.

International trade

Japanese industrial production for November won't be released until late December. But November data for the nation's international trade were released in the current week and, unfortunately, the results do not point to improvement for either of the coming reports. Japanese exports fell 4.2 percent on the year in November after dropping by just 0.2 percent in October, which was much weaker than expected. Exports to China slowed in the month and moved into contraction for the US, Hong Kong and Taiwan. Imports fell 11.1 percent on the year after dropping 13.3 percent previously, which was close to expectations but nevertheless very weak. Together they produced a smaller-than-expected trade surplus of ¥366.8 billion from ¥872.9 billion in October.

Deflation

Persistent disinflation if not deflation is one of the major risks right now facing global central banks, a secular trend that has robbed policy makers of their interest-rate monetary tools which, like inflation, are likewise at zero or already below. Outright deflation is the inescapable reality being seen in Japan this year as price pressures continue to weaken with both headline and underlying measures of inflation moving deeper into negative territory. Prices moderated across several major categories of spending in November. Japan's headline consumer price index fell 0.9 percent on the year in November after dropping 0.4 percent in October as food prices fell an annual 0.2 percent, utilities costs fell 5.4 percent, and transportation & communication prices declined 1.1 percent. Core CPI, which excludes fresh food prices, fell 0.9 percent in November after dropping 0.7 percent in October. The CPI excluding fresh food and energy prices declined 0.3 percent on the year in November after falling 0.2 percent previously. The Bank of Japan issued a policy announcement shortly following the CPI results, keeping policy settings on hold but announcing a review into new policy tools that might support their evermore elusive odyssey to lift inflation above 2 percent.

Markets: Vaccines, Agreements, Bitcoin, and IPOs!

The week was highlighted by the US rollout of Pfizer/BioNTech's vaccine and US approval of Moderna's vaccine. Talk through the week of new US fiscal stimulus also helped the global markets though negotiations were extending into the weekend which didn't help Friday's close. Markets opened Monday firm and rallied on Tuesday helped in part by easing uncertainty over the US election after Senate Majority Leader and political opponent Mitch McConnell, following an uneventful Electoral College vote, congratulated Joe Biden as "President-elect". Risk assets also rose after European Commission President Ursula von der Leyen pointed to "a path" for a Brexit agreement though here too talks extended into the weekend. The December flash PMIs from Europe helped European markets on Wednesday especially the DAX which jumped 1.5 percent. Strength in bitcoin, rising sharply in the week from $19,000 to nearly $23,000, also helped risk appetite as did a swelling list of initial public offerings that prompted a warning from Goldman Sachs over "euphoria" in the IPO market.

The bottom line

More than just industrial production and retail sales are sagging in the US: employment appears to be as well with jobless claims jumping the last two weeks and pointing to the risk of a disappointing December employment report that would follow a disappointing report for November. Haggle as they may, lawmakers in Washington are hearing the rising alarms from the economic data as well as from new lockdowns underway not only in the US but Germany as well.

**Contributing to this article were Jeremy Hawkins in London, Brian Jackson in Sydney, and Mace News in New York

Week of December 21 to December 25 (all days local)

Christmas week will be very light, led by consumer sentiment updates from the Eurozone on Monday, followed by Germany and the US on Tuesday. All, reflecting Covid effects, are expected to remain soft. An announcement from China on its loan prime rate week opens the week with no change expected. Wednesday will see the most news: October GDP from Canada as well as durable goods orders and new homes sales from the US, the latter two offering updates on two US strengths: capital goods and housing. And Wednesday will also see jobless claims from the US where only marginal improvement, after two weeks of significant disappointment, is expected.

China Loan Prime Rate (Monday, Release Time Not Set)

Consensus Change: 0 basis points

Consensus Level: 3.85%

The People's Bank of China is not expected to change its one-year loan prime rate which, back in April, it cut by 20 basis points to 3.85 percent. No change would confirm that officials are comfortable that monetary policy is supporting domestic activity.

Eurozone: EC Consumer Confidence Flash for December (Mon 15:00 GMT; Mon 16:00 CET; Mon 10:00 EST)

Consensus Forecast: -17.6

Consumer confidence is not expected to move further lower in December where the consensus is no change at minus 17.6 for the European Commission's index.

Germany: GfK Consumer Climate for January (Tue 06:00 GMT; Tue 08:00 CET; Tue 02:00 EST)

Consensus Forecast: -9.5

GfK's survey for December, at minus 6.7, was lower than expected with January's consensus, reflecting extended virus shutdowns, at minus 9.5.

US Consumer Confidence Index for December (Tue 15:00 GMT; Tue 10:00 EST)

Consensus Forecast: 97.0

Consumer confidence slipped for a second month in a row in November to a lower-than-expected 96.1 with December's consensus at a still very modest 97.0.

US Durable Goods Orders for November (Wed 13:30 GMT; Wed 08:30 EST)

Consensus Forecast: M/M: 0.7%

Consensus Forecast: Ex-Transportation - M/M: 0.5%

Consensus Forecast: Core Capital Goods Orders - M/M: 0.6%

Durable goods orders are expected to slow in November to a 0.7 percent increase following October's 1.3 percent gain. Core capital goods have been very solid, at a 0.7 percent gain in October with November seen at plus 0.6 percent.

Initial Jobless Claims (Wed 13:30 GMT; Wed 08:30 EST)

Consensus Forecast: 863,000

Consensus Range: 800,000 to 900,000

Having jumped a combined 169,000 in the two prior weeks to 885,000 in the Dec. 12 week, jobless claims in Dec. 19 week are expected to come in at 863,000.

Canadian GDP for October (Wed13:30 GMT; Wed 08:30 EST)

Consensus Forecast, Month over Month: 0.2%

In an early look at the beginning of the fourth quarter, monthly GDP growth is expected to slow to 0.2 percent in October versus September's 0.8 percent rise.

US New Home Sales for November (Wed 14:00 GMT; Wed 10:00 EST)

Consensus Forecast, Annual Rate: 988,000

New home sales have been soaring and beat expectations in October at a 999,000 annual rate. Econoday's consensus for November is very limited slowing to 988,000.