Manufacturing Weekly Economic Highlights | 11 March 2024

Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!

In this edition, we focus on the economic conditions in America, Europe, China, Thailand, as well as updates on the energy and logistics markets.

Americas

“USD closed moderately lower this week”

“US unemployment rate jumps from 3.7% to 3.9%”

“US wage growth 0.1% MoM, 4.3% YoY”?

“Why is the US consistently over-reporting monthly jobs growth?”

The USD Index (DXY) finished moderately lower this past week, from 103.89 on 1 March 2024 to close at 102.74 on 8 March 2024. The DXY is down 1.08% for the week, down 1.32% for the month, down 1.39% YTD, and down 1.75% over the past 12 months.

The US Bureau of Labor Statistics (BLS) revised its January jobs report from a gain of 353,000 to 229,000, a reduction of 124,000. It also revised December’s report down 43,000 for a total two-month revision of 167,000 jobs, as reported by the Daily Caller on 8 March. The BLS has consistently over-reported the number of jobs added, with 2023 monthly job reports being revised downwards by an average of 105,000 per month. In 2023, 1,255,000 fewer jobs were added than initially reported. In prior years, the BLS only revised the monthly jobs total downwards five times in 2022 and once in 2021, calling into question the consistently over-reporting bias evidenced throughout the past year. The BLS also reported that the unemployment rate jumped from 3.7% to 3.9% in February.

Government jobs reached a record high of 23,180,000 in February for the fourth consecutive monthly record. For the past year, the government has added 53,000 jobs per month for a total expansion of government jobs of 636,000.

During 4Q23 US GDP grew by $328.7 billion while the federal debt increased during the same period by $800 billion.

Meanwhile, the Wall Street Journal reported on 8 March that US wage growth in January was revised downwards from 0.6% MoM to 0.5% MoM, with February wage growth only 0.1% MoM and 4.3% YoY.? The article notes that a wage growth of 3.5% to 3.75% YoY is compatible over time with a 2% rate of inflation.

The number of native-born workers with a job fell through February by 881,000 YoY to 129.3 million while foreign-born workers with a job increased by 1.5 million to 31 million.

Fed Chair Powell signaled a rate cut in March is unlikely, but interest-rate futures are pricing a better-than-50% chance of a rate cut in June 2024.

Reuters published on 8 March that the Commerce Department’s Bureau of Economic Analysis reported a US trade deficit increase 5.1% to $67.4 billion in January. Total imports increased 1.1%, with goods imports rising 1.2%. Imports of capital goods and motor vehicle parts and engines were the highest on record.

Exports increased 0.1% to $257.2 billion, with goods exports also up 0.1%. Capital goods exports reached a record high but were offset by declining crude oil exports.

Weak trade numbers may reduce 1Q24 GDP, with consensus estimates at 2.0% compared with 3.2% in 4Q23.

Meanwhile, MoneyWeek reported on 8 March that the strength in gold and crypto currencies could signal a flight from government debt and a potential “debt implosion.” Gold has reached a record price above $2,100 per ounce, and it is also close to a record when measured in Stirling. Bitcoin has nearly tripled in value over the past 12-months and is up 47% YTD.

Meanwhile, Debt-to-GDP ratios are soaring. UK Debt to GDP was 21% in 1990 and hit 50% during the 2008 financial crisis. It has now passed 100%. France has increased from 54% in 2000 to more than 114% today. Japan is up from 135% to 265% today. The US, which is the largest global debtor, has surged from 55% in 2000 to 129% today.

Europe

“EUR ended moderately higher this week relative to the USD”

“EU mired in stagnation”

“EU 2024 GDP forecast cut from 0.8% to 0.6%”?

“EU employment up 1.0%, productivity remains flat”

The EUR finished moderately higher this week, from $1.084 USD per EUR on 1 March 2024 to end at $1.094 USD per EUR on 8 March 2024. The EUR is up 1.49% against the USD over the past month.

The Eurozone and the EU as a whole experienced stagnation in 4Q23 per Eurostat’s data, as reported on 8 March by EuroNews. Eurozone economic activity has been stagnant since 3Q23 when it saw growth of 0.5%. The only growth in real economic activity in the Eurozone was in 2Q23 when it saw 0.1% growth.

Leading EU 4Q23 growth was Denmark at 2.0%, followed by Croatia at 1.3% and Slovenia at 1.1%. Ireland saw the greatest decline at 3.4%, followed by Estonia and Finland which both declined at 0.7%.

Meanwhile, EU employment in 4Q23 increased 1.0% with Eurozone employment rising 1.2%. Romania saw the highest employment growth at 1.5%, followed by Malta at 1.4% and Spain at 0.8%. Latvia saw the largest decline in employment, down 1.0%, followed by Finland down 0.6% and Poland down 0.2%.

The European Central Bank announced on 7 March that it would keep interest rates unchanged, awaiting further confidence in declining inflation before cutting rates. ECB is forecasting 2024 inflation at 2.3%, down from its previous 2024 inflation estimate of 2.7%. It estimates 2025 inflation at 2.0%, with 1.9% in 2026.

The ECB also cut its 2024 GDP estimate from 0.8% to 0.6%, with 2025 predicted at 1.5% and 2026 at 1.6%.

China

“The CNY ended modestly stronger this week”

“Chinese EV minerals mining investments surge 158%”

“Document 79 directive seeks to delete American technology from China by 2027”?

“The Chinese consumer is downright depressed”

The CNY ended modestly stronger this week, from 7.196 per USD on 1 March 2024 to end at 7.190 on 8 March 2024. The CNY has been mostly flat for the past month, down 0.01%.

In 2023, the Chinese Belt and Road Initiative (BRI) promoted Chinese companies to boost investments in mining materials including lithium, copper, and nickel, by 158% YoY. As reported on 3 March by the Daily Caller, BRI investments focused on green energy, mining, and related activities continue to surge in 2024. Many of these investments appear targeted to capture some of the $369 billion of US green energy-related subsidies allocated in the August 2022 US Inflation Reduction Act through dominance of the raw material supply chains needed to manufacture these promoted products.

The Wall Street Journal reported on 7 March on the formerly secret Chinese “Document 79,” also known as “Delete A” for Delete America, which is a September 2022 Chinese directive to drive US technology out of China. The directive requires state-owned companies in finance, energy, and other sectors to eliminate foreign software from their IT systems by 2027. Dell, IBM, and Cisco Systems have already seen much of their products replaced by Chinese substitutes. Chinese leader Xi Jinping is seeking Chinese self-sufficiency across industries from semiconductors to aircraft and fighter jets to agricultural grains and energy.

Meanwhile, China is increasing its spending on science and technology by 10% in 2024 to $51 billion USD.

Forbes reported on 8 March that “The Chinese Consumer is Downright Depressed,” with a People’s Bank of China (PBOC) consumer sentiment report falling from 56 prior to the pandemic to 49.7 today, with 50 being the median between optimistic and pessimistic. The survey found that 15% of Chinese households have experienced a drop in income since the pandemic, and a greater percentage expect further income declines. The survey found 43% of workers are insecure about their jobs, with only 15% expecting property values to rise in coming years. 60% of Chinese households are prioritizing savings over consumption, compared with 25% prioritizing consumption over savings. The total value of outstanding Chinese household mortgages actually fell in 2022 as homeowners paid down outstanding balances.

Thailand

“THB ended moderately stronger again this week”

“Thai headline CPI deflationary for fifth consecutive month, core CPI remains positive”?

“Thailand offers Tesla 100% renewable power for EV or battery factory”

The THB ended moderately stronger again this week, from 35.80 per USD on 1 March 2024 to end at 35.39 per USD on 8 March 2024.

Thailand’s headline Consumer Price Index (CPI) fell in February by 0.77% YoY for the fifth consecutive month, as reported on 5 March by the Daily Mail. Core CPI increased 0.43% YoY. The Commerce Ministry said the decline in CPI is due to ongoing energy subsidies and falling food prices, and it expects the CPI to fall through April mainly due to energy subsidies. It forecast 1Q24 headline CPI to fall 0.7% to 0.8% YoY, but CPI could increase in May due to baseline effects.

The Commerce Ministry discounted the headline CPI deflation, as core inflation remains positive.

The Prime Minister continues to call on the Bank of Thailand to cut its 2.5% policy rate, but the BoT Governor Dr. Sethaput said rate cuts would not help the economy much and could encourage additional household borrowing amid already high household debt levels. The BoT policy rate of 2.5% remains among the lowest in the world.

On 8 March the Thai government announced that Michelin plans to invest €300 million ($328 million USD) over the next three years to increase production capacity. Michelin’s prior investments in Thailand exceeds €1 billion in five factories and 8,000 workers.

In a potentially bold move, the Thai government has reportedly committed to offering Tesla 100% renewable power supply for a proposed factory to produce Tesla EV’s or batteries. The factory is expected to require a 320-hectare site to support the manufacturing activities. CNN reported on 5 March that Thailand has already received FDI commitments of $4.2 billion USD from Chinese and Japanese investors for EV supply chain investments.

Energy

“Crude meandered higher before closing sideways this week”

“Henry Hub finished the week sideways and EU Natural Gas closed moderately higher this week”

“US oil and gas industry shifting from growth to Capital Discipline following surging M&A activity”

“German cross-border gas levy under pressure”?

“China reports massive deep-water oil discovery in South China Sea”

Brent Crude finished moderately lower this week, from $83.46 USD on 1 March 2024 to close at $82.05 USD on 8 March 2024.

Henry Hub finished sideways this week, from $1.84 USD per MMBTU on 1 March 2024 to close at $1.81 USD per MMBTU on 8 March 2024.

EU Natural Gas finished moderately higher this week, from €25.81 per MWh on 1 March 2024 to €26.39 per MWh on 8 March 2024, equivalent to $7.08 USD per MMBTU.

Business Insider reported on 9 March that US oil production growth could slow amid ongoing merger and acquisition (M&A) activity rocking the industry. In 2023 the US oil and gas sector saw a record $190 billion USD of merger deals announced, and 2024 has already seen $55 billion USD mergers announced. Larger public sector companies are increasingly acquiring private operations, with operating strategy shifting to “Capital Discipline,” reducing costs, reducing drilling activities, and maximizing cash return to shareholders. Private entities by contrast were primarily focused on growth.

Germany is under pressure from EU energy regulators to reduce or eliminate its levy on cross border gas trade, as reported on 8 March by the Daily Mail. Germany implemented the cross-border gas trade levy in October 2022 following Russia’s invasion of Ukraine. Germany spent billions to quickly fill its gas storage with non-Russian gas and introduced the levy to recoup its costs. In January 2024 Germany increased the levy from €0.59 per MWh to €1.86 per MWh. Germany is expected to extend the levy through the end of 2027.

China’s third largest national oil and gas company, China National Offshore Oil Company (CNOOC) reported a “massive deep-water oil discovery in the Kaiping South oilfield,” located in the South China Sea 300 km off the coast of Guangdong province, as reported on 8 March by EuroNews. The average water depth at the find is 500 meters. CNOOC’s press release reported, “"Kaiping South Oilfield is China's first deep-water and deep-play oilfield with proved in-place volume over a hundred million tons. The discovery fully demonstrates the broad prospects for exploration in deep-water South China Sea and further expands the resource base for the company's high-quality development."

China’s oil sector is primarily characterized by mature phase fields facing natural declines in production, with few substantial new discoveries to sustain production growth. China’s oil production, which had grown rapidly, may be slowing down as government support is diverted towards economic stimulus and infrastructure.

Logistics

“BDI closed moderately higher again this week”

“Houthi attack that killed 3 crew members may be red line for shipping companies”?

“Panama Canal continues transit restrictions pending March start of rainy season”

Baltic Dry?Index finished moderately higher again this week, from 2,203 on 1 March 2024 to close at 2,345 on 8 March 2024. Trading Economics has maintained its BDI forecast this week at 2,218 by the end of 1Q24 and 2,575 in 12 months. The BDI is now up 11.99% YTD.

On 6 March Houthi rebels attacked the Liberian-owned bulk carrier M/V True Confidence, killing at least three crew members and injuring four others, as reported on 8 March by CNN. This attack may provide to be a “red line” incident for Red Sea transits, with increasing numbers of bulk carriers avoiding the area. The number of bulk carriers anchored north and south of the Suez Canal surged 225% on 6 March over the prior day, with 61% of the total anchoring following the attack. Last month, the number of bulk carriers in the Red Sea was already at its lowest level in 2 years. Just 30% of the usual shipping capacity, including container ships, bulk carriers, car carriers, and tankers, are currently transiting through the Red Sea and Suez Canal.

To date the Houthis have launched more than 45 missile and drone attacks against commercial and naval vessels.

Meanwhile, the Wall Street Journal reported on 10 March that more than 50 ships are queued to transit the Panama Canal, amid the ongoing drought. Panama Canal transit tolls are currently around eight times more expensive than normal. Cargo volumes through the Suez and Panama Canals have dropped by more than 33%, delaying deliveries and raising shipping costs. This is the first time both major canals have been disrupted simultaneously.

The Panama Canal Authority plans to review the number of permitted daily crossings in April, depending on March rainfall totals.

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