China's economy lost a bit of momentum in October

DAVID SCUTT 

OCT 31, 2017, 12:59 PM

ChinaFotoPress/Getty Images

China’s economy lost momentum in October with activity levels growing at a slower pace than September.

According to China’s National Bureau of Statistics (NBS), the government’s manufacturing purchasing managers index (PMI) fell to 51.6 from 52.4, missing forecasts for a smaller decline to 52.0.

This PMI measures perceived changes in activity levels across China’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

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So at 51.6, activity levels across the sector improved a slower pace than September.

While below market expectations, it’s hardly a weak result, particularly as activity levels improved at the fastest pace since April 2014.

Activity levels are still improving, at least according to this survey.

As has been the case for several years, larger firms continued to outperform their smaller rivals.

The NBS said the PMI for large manufacturers stood at 53.1, 0.7 points lower than September, although that was still well above the 49.8 and 49.0 readings for medium and smaller-sized firms.

Like the headline PMI, readings above 50 for these subindices points to an improvement from one month earlier.

By activity subindex, production fell from 54.7 to 53.4 while hiring levels declined for a seventh consecutive month, holding steady at 49.0.

Prices for raw materials and finished goods continued to grow at a rapid pace, albeit at a slightly slower level than September.

New orders and new export orders also grew at a slower pace, falling to 52.9 and 50.1 respectively. They previously stood at 54.8 and 51.3.

As a lead indicator, these readings suggest that overall activity levels may slow further in the months ahead.

And, like the manufacturing sector, non-mining sectors of the economy also slowed during the month.

The government’s separate non-manufacturing PMI fell to 54.3 from 55.4, indicating that activity levels improved at a slower pace than the month earlier.

This PMI measures non-industrial areas of the economy, including the performance of the services and construction indices.

By activity subindex, hiring levels fell modestly, continuing the trend seen throughout 2017, while input prices continued to grow faster than prices to consumer, indicating an increase in margin pressures.

New orders from domestic sources slowed, falling to 51.1 from 52.3 in September, although new export orders rebounded after falling in the previous two months, lifting modestly to 50.7 from 49.7.

The NBS said that activity levels for real estate and residential services deteriorated over the month, reflecting attempts from policymakers to cool rampant house price growth in many larger centres.

Activity across the construction sectors also slowed, falling to 58.5, down 2.6 points from September. Still a rapid improvement, but not to the same scale seen in the first half of the year.

Combined, today’s reports suggest that the Chinese economy lost a bit of momentum after a stellar run in September.

Markets will now look to separate China PMI readings from IHS Markit in the coming days for confirmation of the slowdown.

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A key GOP senator who helped sink Obamacare repeal has 2 demands for the tax bill

• Bob Bryan
 

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Sen. Susan Collins of Maine. Alex Wong/Getty Images

• Republican Sen. Susan Collins told Bloomberg that she has two stipulations to support the GOP's tax bill.
• Collins wants the estate tax to remain and no tax cuts for people making $1 million a year.
• The demands could throw a wrench in Republican tax reform negotiations.

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Sen. Susan Collins on Monday said she would have two demands to support the forthcoming Republican tax reform bill.

Collins, a moderate member of the Senate GOP conference, told Bloomberg's Sahil Kapur on Monday that the tax plan should not repeal the estate tax or change tax rates on people making more than $1 million a year.

"I do not believe that the top rate should be lowered for individuals who are making more than $1 million a year," Collins told Bloomberg. “I don’t think there’s any need to eliminate the estate tax."

The estate tax currently applies to inheritances of more than $5.49 million, and that limit will be increased to $5.60 million for individuals in 2018. Despite Republicans' insistence that the repeal is aimed at small businesses and family farms, very few of either pay the tax.

The demands from Collins are important, since Republicans only control 52 seats in the Senate. While the tax bill is set to go through the budget reconciliation process, meaning it only needs 50 votes to pass, Republican leaders can only afford to lose two members of their conference.

Collins voted against various Republican Obamacare repeal bills over the summer and has made it apparent that she is not afraid to vote against leadership's wishes.

Already a handful of Republican senators, most notably Sen. Bob Corker, have raised concernsabout the plan's potential effect on the federal deficit. Sen. Rand Paul said he also had reservations about the distribution of the benefits from the plan.

Despite the demands, Collins told Bloomberg that she hopes to vote for the tax package.

"I hope very much to be able to support a tax reform package," Collins said, but added she can't guarantee she will because she doesn't know "what’s going to be in it."

SEE ALSO: A key homebuilders' group is now opposing the Republican tax plan — and it's a sign of trouble to come

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Here's everything you need to know about Jerome Powell, Trump's likely pick to lead the Federal Reserve

• Pedro Nicolaci da Costa
 

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Federal Reserve Chair Janet Yellen congratulating Jerome Powell at his swearing-in ceremony for Fed governor.Thomson Reuters

• President Donald Trump is expected to appoint Jerome Powell, a Federal Reserve board governor who previously worked as a private-equity executive, as Fed chair, replacing Janet Yellen.
• Picking Powell would signal the administration is wary of jolting markets with some of the other choices on the short list. Powell is likely to keep interest rates low, while others had signaled they might be more aggressive in raising interest rates.
• Powell lacks formal monetary-policy training but has gotten quite a bit of experience since joining the board in 2012.

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President Donald Trump looks set to appoint Jerome Powell, a former private-equity executive at Carlyle Group who now sits on the Federal Reserve board, as the next Fed chair.

While the official announcement is not expected until Thursday, several news outlets starting with Politico have reported that he is the likely nominee, citing White House sources.

The choice of Powell would be a departure in a long tradition of reappointing Fed chairs to a second term, regardless of party affiliation. Janet Yellen, a Democrat, actively interviewed for the job.

Powell, a 64-year-old Republican, was appointed to the Fed's powerful Washington-based board of governors in 2012 by President Barack Obama. Powell worked in private industry much of his life and was a partner at Carlyle Group from 1997 to 2005. He had to learn on the job a bit when it came to monetary theory and interest-rate policy, but his financial background made him well-equipped.

Danielle DiMartino Booth, who served as an adviser to Richard Fisher, then the Dallas Fed president, told Business Insider she didn't see Powell's lack of formal monetary economic training as a liability.

"His experience in private equity affords him a unique vista on shadow banking, and his background in politics is critical for dealing with the craziness that it DC these days," said DiMartino Booth, who founded the research firm Money Strong. "He's not a Ph.D. in economics, which too few are highlighting in my view."

Well received on Wall Street

The appointment of Powell, who is among the wealthiest members of the Fed, is likely to be well received on Wall Street, which will see him as a friendly face on possible deregulation but also, importantly, as a voice of continuity in interest-rate policy at a key time for the central bank.

The Fed has raised interest rates four times since December 2015, and it recently began gradually winding down its $4.5 trillion balance sheet. Fed officials are predicting several additional rate increases this year and next, but financial markets are more skeptical.

Powell is likely for now to maintain a steady course of gradual but cautious rate increases with an eye to an inflation rate that continues to undershoot the central bank's 2% goal. (This points to economic activity and a labor market that are still running below their potential, a point highlighted by weak wage growth for most Americans.)

He has not been a major voice on interest rates until now, focusing on more tangential issues for the Fed like the regulation of scandal-ridden Libor interest rates, financial innovation, and housing policy. His most recent speech on monetary policy was in June for the Economic Club of New York. At that point he said:

"The healthy state of our economy and favorable outlook suggest that the FOMC should continue the process of normalizing monetary policy. The Committee has been patient in raising rates, and that patience has paid dividends."

Back in May 2016, he sounded more dovish on policy — that is, less likely to tighten rates — than many members on the Fed's policy-setting Federal Open Market Committee.

"The risks of waiting [to raise rates] are frankly not so great," said. "This doesn't feel like an economy that's bubbling over or threatening to break into high inflation."

"He has been in line with the leadership on monetary policy in recent years," Julia Coronado, a former Fed board economist who worked on Wall Street before founding the research firm MacroPolicy Perspectives, told Business Insider. "His comfort zone and leadership has been in getting his hands dirty on regulatory and financial sector plumbing issues. He is smart and collegial and knows how to lean on the staff's expertise."

Forging a consensus

She added he would probably be a different kind of Fed chair than Yellen "in that he will be forging a consensus more than driving it on monetary policy." She continued: "His depth on financial infrastructure could come in handy if and when the FOMC needs to confront decisions on balance sheet policy again."

Because Powell is seen as less likely than other contenders like John Taylor and Kevin Warsh to be more aggressive about interest-rate hikes, bond markets reacted positively to the news.

Powell previously served as assistant secretary and undersecretary of the Treasury under George W. Bush, overseeing banking and Treasury markets. His status as a board member makes him an easy nominee to confirm as well.

"Given his voting record and public comments to date, we would expect the Fed's [rate-hike path] to be pulled forward only modestly if Gov. Powell is tapped," Isaac Boltansky and Lukas Davaz of the DC-based policy financial research firm Compass Point wrote in a client note.

"[He] has been confirmed twice by the Senate for his current post on the Federal Reserve, which underscores our view that he would win confirmation if nominated as Chair."

Likely a plus for Trump, who ran on a platform of Wall Street deregulation, Powell has signaled an openness to watering down Dodd-Frank rules that were put in place after the global financial crisis.

This puts him in the company of another Trump appointee to the Fed, the central bank's vice chair for supervision, Randall Quarles, who's also in favor of unwinding some of the postcrisis rules meant to prevent a repeat of 2008.

Yellen recently warned of the risks of going too far in the other direction. "Any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years," she said in August.

SEE ALSO: Trump could force a repeat of the Federal Reserve's worst modern-day policy blunder

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