Japan: Industrial Rebound

Japan: Industrial Rebound

Japan's factories hummed harder; China's growth path continued; Fed Chair Powell spoke up; Summitry and substance were on display at the G20 meeting in Buenos Aires.

[Interest rates] “… remain just below the broad range of estimates of the level that would be neutral for the economy.”
Fed Chair Jay Powell

Japan: Industrial rebound

Preliminary figures for October show Japanese factory output surprising to the upside, rising 2.9% from September’s level, and 4.2% year-over-year -- both well above expectations. Retail trade also rose in October, up 3.5% year-over-year and 1.2% since September. Housing starts rose 0.3% year-over-year in October as well. The year-over-year figures are especially encouraging, since Q3 saw a series of floods and other disasters; the year-ago figures show October’s economy regaining its footing.

However, Japan is far from completely out of the woods; vehicle production fell -5.3% from the year ago level, possibly due to rising tariffs’ construction orders fell -16.5% from the previous year.

China: Figuring growth

The most recent official figures reflect the changing nature of China’s economy.  Manufacturing PMI[1] has fallen to the neutral level of 50.0 for November, having reached as high as 52.4 for September 2017. This component pulled the overall “composite” PMI figure  for November down to 52.8. Non-manufacturing PMI remained above neutral for the month, at 53.4. Industrial profits, however, rose some 3.6% in October year-over-year.

On the financial front, the share of global payments[2] made in Chinese yuan for October came in at 1.70%, below September’s level of 1.89%; total foreign exchange reserves fell some 1% to $3.053 trillion as of the end of October, some 7.4% below the year-ago figure.

The Fed: About next year  

The positive impact on markets of Fed Chair Jay Powell’s November 28 statements was less about the technical issue of neutral interest rates than about the number and size of the FOMC’s upcoming rate hikes.    

Before Powell’s speech, the prevailing opinion, based on previous statements, was that the Fed was anticipating more rate hikes in response of continuing above-trend U.S. growth. Yet based on recent forward-looking data,  financial markets had grown increasingly concerned that the economy might not grow in line with the Fed’s expectations. Example: the expected future rate of inflation, as measured by the “break-even” inflation rate, had been falling since July, reaching as low as 1.73% as of November 27, well below the Fed’s stated 2% objective.

Whether or not the FOMC has in fact changed its outlook will likely be revealed on December 19, when the Fed’s widely anticipated rate hike will be accompanied by its regularly-scheduled quarterly economic outlook, which includes, inter alia, projections by individual members of the FOMC about their expectations for rates in the following two years.

Global Trade: Summitry and substance  

The G20 economic summit in Buenos Aires was the setting for an unusually large number of negotiations on issues usually settled in advance of these meetings, including U.S.-China tariffs, Brexit, crude-oil production agreements between Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman, tensions over Russia’s recent military moves in and around Ukraine – not to mention who stands next to whom in the widely-anticipated group photo. Given that, expectations for headline news from the post-conference consensus communiqué for this session are relatively limited.


[1] Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms. PMI greater than 50 indicated economic expansion; below 50, contraction.

[2] The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the widely-used provider of a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.


The Group of Twenty (also known as the G-20 or G20) is an international forum for the governments and central bank governors from 20 major economies. The members include 19 individual countries—Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States—along with the European Union (EU). The EU is represented by the European Commission and by the European Central Bank.

The U.S. Federal Reserve, or “Fed,” is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The Federal Open Market Committee (FOMC) is the Fed's principal policymaking committee.


[1] Definition of PMI goes here

[2] Define SWIFT


[1] Definition of PMI goes here

[2] Define SWIFT


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