Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041130f.jpg" width="353">
With the Japanese economy having increased a mere 0.1% in the third quarter, October data will be scrutinized for signs indicating whether the economy has merely paused or it has entered a down trend. Today, data on industrial production, incomes and expenditures of families of household workers, the unemployment rate, exports and imports have been released by the Japanese government. In additionNTC Research has released its PMI for manufacturing in Japan in November. Most of the data are disappointing.
Industrial Production fell 1.59% in October from September. The NTC Research Purchasing Managers Survey declined in November to 51.27 from, 52.95 in October--not a good omen for future production.
With declines in real pre tax and after tax incomes of, 2.74% and 2.61%, respectively and with a one percentage point rise in the unemployment rate, families of household workers cut back on their real spending by 1.21% in November from October. Their spending, moreover, was even below, if only slightly, the corresponding month of last year. (Industrial production and the expenditures of families of workers are shown in the attached chart.
The one bright spot was an increase in exports of 3.12%. However, imports on a year-over-year basis continue to rise sharply, largely as a result of imports of petroleum and related products, including coal, Liquid Petroleum Gas (LPG) and Liquid Natural Gas (LNG). 

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Oct 04</th>
<th scope="col">Sep 04</th>
<th scope="col">Oct 03</th>
<th scope="col">M/M &nbsp;%&nbsp;</th>
<th scope="col">Y/Y &nbsp;%&nbsp;</th>
<th scope="col">&nbsp;2003&nbsp;&nbsp;</th>
<th scope="col">&nbsp;2002&nbsp;</th>
<th scope="col">&nbsp; 2001&nbsp; &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Worker Households, Real Indexes&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Income</td>
<td>95.8</td>
<td>98.5</td>
<td>96.4</td>
<td>-2.74</td>
<td>-0.62</td>
<td>95.6</td>
<td>98.1</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Disposable income</td>
<td>97.0</td>
<td>99.6</td>
<td>97.4</td>
<td>-2.61</td>
<td>-0.41</td>
<td>95.6</td>
<td>97.8</td>
<td>99.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Living expenditures</td>
<td>98.0</td>
<td>99.2</td>
<td>98.1</td>
<td>-1.21</td>
<td>-0.10</td>
<td>97.9</td>
<td>99.0</td>
<td>99.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate %</td>
<td>4.7</td>
<td>4.6</td>
<td>5.2</td>
<td>0.1*</td>
<td>-0.5*</td>
<td>5.3</td>
<td>5.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">Industrial Production (2000=100)</td>
<td>98.8</td>
<td>100.4</td>
<td>97.5</td>
<td>-1.59</td>
<td>1.33</td>
<td>95.1</td>
<td>92.0</td>
<td>93.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports (Tril. Yen)</td>
<td>5283.9</td>
<td>5124.1</td>
<td>4653.4</td>
<td>3.12</td>
<td>13.55</td>
<td>54548.1</td>
<td>52141.9</td>
<td>49086.3</td>
</tr>
<tr>
<td class="firstcol">Imports (Tril. Yen)</td>
<td>4431.7</td>
<td>4312.8</td>
<td>3684.0</td>
<td>2.76</td>
<td>20.30</td>
<td>44349.7</td>
<td>42229.4</td>
<td>42346.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Mineral Fuels&nbsp;</td>
<td>975.5</td>
<td>932.3</td>
<td>678.1</td>
<td>4.64</td>
<td>43.85</td>
<td>9349.9</td>
<td>8173.9</td>
<td>8523.7</td>
</tr>
<tr>
<td class="firstcol">Balance (Tril. Yen)</td>
<td>852.2</td>
<td>811.3</td>
<td>969.41</td>
<td>5.04</td>
<td>-12.10</td>
<td>10198.4</td>
<td>9912.5</td>
<td>6740.1</td>
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With the Japanese economy having increased a mere 0.1% in the third quarter, October data will be scrutinized for signs indicating whether the economy has merely paused or it has entered a down trend. Today, data on industrial [...]

A Spate of New Data from Japan: Most of It Disappointing

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Tom Moeller

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) weakened 2.1% (+2.5% y/y) during the four weeks ended November 8, 2024, continuing the decline in the two prior four week periods.

Prices in the Miscellaneous group led the decline and fell 3.1% during the last four weeks but were up 2.0% y/y. The cost of natural rubber was off 19.8% in four weeks but jumped 35.4% y/y. Working higher, plywood prices improved 7.4% over the last four weeks (8.0% y/y) to the highest level since early-April.

Prices in the Metals group weakened 2.5% (+10.8% y/y) over the most recent four weeks. Tin costs fell 4.6% in four weeks (+30.2% y/y) while steel scrap prices weakened 3.9% (-0.9% y/y) in four weeks. The cost of lead fell 2.9% (-8.1% y/y). Copper scrap prices were off 2.3% (+16.7%) while zinc prices fell 1.6% (+18.5% y/y) in four weeks. To the upside, aluminum prices edged 0.3% higher during the last four weeks (16.1% y/y).

Crude Oil & Benzene group prices declined 2.2% (-6.5% y/y) in the latest four weeks. The cost of West Texas Intermediate crude oil weakened 4.6% to $71.42 per barrel and were 8.4% lower y/y. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, fell 2.6% (-16.4% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index declined 2.0% (+3.1% y/y) in the latest four-week period.

Textile prices were off 0.4% (-0.0% y/y) over the last four week period. Cotton prices fell 2.3% (-9.9% y/y) and the cost of burlap was little changed (+16.3% y/y) during the last four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

**Rising unemployment does not mean recession is inevitable** from the Federal Reserve Bank of Dallas is available [here](https://www.dallasfed.org/research/economics/2024/1008).

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- Natural rubber prices fall sharply though lumber costs increase.
- Metals & crude oil prices remain under pressure.
- Textile prices ease as cotton prices fall.

FIBER: Industrial Commodity Prices Decline in Latest Four Weeks

Tian Yong Woon

In this week’s letter, we explore the potential impacts of President-elect Trump’s recent electoral victory on Asia. One key implication is that Trump’s policies could limit the room for policy easing by Asian central banks, particularly if his policies prove inflationary and prompt the US Fed to enact a tighter-for-longer monetary policy. As a result, market expectations for yield differentials between the US and other Asian economies may turn less favourable for the latter, potentially putting downward pressure on Asian currencies.

Beyond this, the most significant effect of Trump’s win could be on trade. Proposed tariffs of up to 60% on US imports from China and up to 20% on imports from other countries create a substantial risk of trade disruption. These measures could provoke retaliatory actions from affected economies or, alternatively, lead to the US negotiating bilateral agreements to reduce the impact, as we saw during Trump’s first term.

Additionally, Trump’s trade policies might prompt a fundamental shift in business strategies, both in the US and abroad. Companies could reconsider their global supply chains, potentially accelerating reshoring or onshoring efforts, while investments in overseas operations could be discouraged. Finally, while Trump’s “drill, baby, drill” stance may be initially expected to lower energy prices, the overall impact on global oil prices may not be so straightforward. This is due to the role of other major producers, such as OPEC+, as well as the potential for renewed geopolitical tensions and changes in global demand dynamics.

**Monetary policy**
The impact of the recent US election – resulting in President-elect Trump’s victory – is set to reverberate globally. Governments, businesses, and market observers alike are now likely scrambling to assess the potential policy implications. One key area of focus is the future direction of US monetary policy, which, in turn, may lead to reassessments of monetary policies across Asian economies. Specifically, the US Fed may not need to cut interest rates as aggressively as previously expected, thanks to the potentially reflationary effects of some of Trump’s proposed fiscal measures. This could result in a higher terminal rate for the Fed in its current easing cycle. Such a shift may, in turn, influence the policy paths of central banks in Asia. If yield differentials become a factor in their decision-making, these banks could face more limited room for easing should they need to adjust rates (see Chart 1). However, several Asian central banks have yet to begin easing cycles due to country-specific factors. These include high household indebtedness, persistent inflation, or simply the absence of a compelling reason to ease, as growth remains strong in some economies.

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The US election had a notable impact on currency markets, as expectations for economic outcomes, yields, and monetary policy became deeply intertwined. The US dollar strengthened in response to Trump’s likely victory, causing Asian currencies to weaken relative to the greenback. That said, Asian currencies remain generally stronger against the dollar on average so far this year (see Chart 2), with the Malaysian ringgit standing out as the best-performing Asian currency. In contrast, the Japanese yen has continued to underperform. However, the ringgit has, in recent months, given back much of the gains it made since mid-July. Meanwhile, initial hopes for a swift policy normalization by the Bank of Japan (BoJ) have stalled. Observers now expect the BoJ may raise rates in January, rather than in December as previously anticipated.

241111T2.jpg

**Trade**
A more direct impact of the US elections on Asia likely relates to trade, which could be particularly concerning for Asian governments if Trump follows through with his plan to raise tariffs on all foreign imports—a move he repeatedly mentioned during his campaign. There is a specific risk of renewed actions against China, especially with Trump having floated the idea of raising tariffs on Chinese imports up to 60%. Beyond the obvious harm to Chinese exports to the US given existing exposures (Chart 3), this could also lead to retaliation from China, and might yield tit-for-tat measures. These proposed US tariff actions align with Trump’s broader intent of further decoupling the US from China and curbing its advances in key technologies. However, whether these actions will effectively slow China's progress or, ironically, accelerate its push toward self-sufficiency remains an open question.

241111T3.jpg

Trade-related concerns are likely to extend beyond China, affecting the rest of Asia and the world, especially if Trump moves forward with his plan to impose blanket tariffs of up to 20% on exports to the US. The initial impact, however, may vary across Asian economies, depending on their direct export exposure to the US, as shown in Chart 4. Additionally, we could see a resurgence of bilateral trade agreements between the US and individual economies—a strategy Trump favoured during his first term. These bilateral deals could help mitigate the overall impact of the tariffs. Beyond export exposure to the US, overall vulnerability to reduced growth from exports varies across economies, as we discussed in last week’s letter. Advanced Asian economies like South Korea and Taiwan are more exposed, as their growth is heavily reliant on exports, with weaker contributions from other sources like private consumption. In contrast, some emerging Asian economies, particularly in Southeast Asia, still benefit from strong domestic demand, providing a buffer against potential export slowdowns.

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**Supply chains**
The imminent threat of tariffs on imports to the US is likely to prompt multinational American companies to reassess their overseas operations. Some may be incentivized to reshore certain functions to avoid additional costs. At the same time, foreign companies might increasingly consider allocating operations to the US, rather than relying on exports, to avoid tariffs and potentially benefit from tax incentives. Beyond the potential reduction in outbound FDI from the US, another impact could be delays or cancellations of new direct investment initiatives, or even the unwinding of existing FDI positions. As with export exposures, the extent of US involvement through FDI varies widely across economies, as shown in Chart 5.

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**Inflation**
A final angle  concerns how Trump’s election victory might affect inflation in Asia, particularly through energy prices. His “drill, baby, drill” policy for the US crude oil industry is expected to significantly boost global oil supply. While this could naturally put downward pressure on oil prices, the reality is that oil prices are influenced by a range of factors. For one, actions by other major producers, such as OPEC+, could offset the increased supply, particularly if they opt for greater production cuts. Additionally, geopolitical risks—such as flare-ups or escalations in oil-producing regions like the Middle East—pose potential upside risks to prices. Finally, any rebound in demand from major oil importers, particularly China, could further balance or even outpace supply-side increases, depending on its economic recovery. That said, the energy impact on inflation represents just one of the potential channels through which Trump’s win could influence inflation in Asia.

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Asia

Economic Letter From Asia: Talking Trump

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) increased 6.5% (13.3% y/y) in September to 105.5 after rising 5.7% to 99.1 in August and 2.4% to 93.8 in July. These increases followed five straight months of decline. The level of home affordability has risen 17.4% from its low of 89.9 in October 2023. It remains 41.1% below the high of 179.2 in April 2020.

The rise in affordability reflected a 2.6% decline (+2.9% y/y) in the median price of an existing single-family home to $409,000. This followed two straight monthly declines from the record $432,900 in June. The price weakening accompanied a drop in the average mortgage rate to 6.26% from 6.58% in August, down from a 7.14% May high. It remained up sharply from the December 2020 low of 2.73%. The declines lowered the principal & interest payment by 5.7% (-7.3% y/y) to $2,017 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged 23.7% of income during September versus 25.2% in August. They remained up from a recent low of 14.0% in April 2020.

The decline in housing costs was accompanied by improvement in median family income. It increased 0.3% in September (5.0% y/y) to a record $102,136 after rising 0.2% in August and 0.4% in July.

Housing affordability increased across the country in September. The index increased 7.0% (11.0% y/y) to 135.6 in the Midwest, remaining the most affordable region of the country to live. In the South, the index rose 5.0% (16.0% y/y) to 109.3 and the affordability index in the Northeast rose 12.3% (8.6% y/y) to 98.7. In the West, where homes are the least affordable, the index rose 4.6% (15.0% y/y) to 74.3 in September.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022 (98.8).

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices slip & mortgage rates decline.
- Median income improves.
- Affordability increases throughout the country.

U.S. Housing Affordability Index Surges in September

Robert Brusca

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Industrial production in September was mixed across the 12 early reporting members of the European Monetary Union (EMU). Output fell on the month in Ireland, the Netherlands, Germany, Greece, France, and Finland, a diverse group of EMU members. At the same time, output was reported stronger in Spain, Portugal, Malta, Belgium, Italy, and Austria. The median change in September was for a decline of 0.2 percentage points; that fall follows a median change of zero in August versus an increase of 0.5% in July.

Looking over broader periods from 12-months to six-months to three-months, median output falls over 12 months by 0.5%, it falls by 2.2% over six months, and it falls by 0.5% over three months. The medians of the annual rate changes over those various periods remain consistently negative.

Over 12 months compared to 12-months ago, output is accelerating in 77.8% of the reporters. However, over six months compared to 12-months, output accelerates in only 38.5% of the reporters. Over three months compared to six-months, output accelerates in 55.6% of the reporters. While the statistics on acceleration are mixed, there seems to be more of a tendency for output to accelerate than to decelerate over these various timelines. The monthly data similarly show mixed statistics on output acceleration month-to-month for September, August, and July.

By country, output is accelerating over the three sequential broad periods in Austria and in Spain. However, sequentially, output is decelerating in Germany, the Netherlands, Malta, and Greece.

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In the quarter-to-date, which is for the completed quarter as of September, output is falling in seven of 12 early reporting European Monetary Union countries. It's rising in the quarter only in Ireland, Belgium, Austria, Finland, and France. Half of the 12 reporting countries show output lower in September 2024 than it was in January 2020, just before COVID struck. Countries with weaker output on this comparison are Germany, Portugal, Spain, Malta, France, and Italy. Note that each of the four largest monetary union countries is on that list.

The final column of the table ranks industrial production output growth for manufacturing on data back to December 2006. Over this period, only four countries are showing year-over-year growth rates stronger than their respective medians over the period. Those countries are Portugal, Greece, Belgium, and Malta. All the rest show percentile rankings below their 50-percentile mark, which puts their respective rates of growth below their historic medians. With rankings in their 44th percentile, Finland and Spain come closest to median results while being below them. But for the rest of the countries on the table, the weakness is much worse, with lower rankings. For example, Germany's growth ranks in its 12.6 percentile, France’s growth registers a 31.3 percentile standing, Italy’s growth has an 18.7 percentile standing. The largest countries in the monetary union have not been performing well.

The September report does not show manufacturing turning a corner, and doing better in the monetary union. It continues to show an uneven performance as well as a great deal of weakness in the area. Both short and longer trends are uneven. The future remains as clouded as ever in an environment still rife with geopolitical conflict.

A Spate of New Data from Japan: Most of It Disappointing

Summary

Louise Curley

More Economy in Brief

FIBER: Industrial Commodity Prices Decline in Latest Four Weeks

Economic Letter From Asia: Talking Trump

U.S. Housing Affordability Index Surges in September

IP Is Mixed across EMU in September

	Oct 04	Sep 04	Oct 03	M/M %	Y/Y %	2003	2002	2001
Worker Households, Real Indexes (2000=100)
Income	95.8	98.5	96.4	-2.74	-0.62	95.6	98.1	99.1
Disposable income	97.0	99.6	97.4	-2.61	-0.41	95.6	97.8	99.1
Living expenditures	98.0	99.2	98.1	-1.21	-0.10	97.9	99.0	99.2
Unemployment Rate %	4.7	4.6	5.2	0.1*	-0.5*	5.3	5.4	5.0
Industrial Production (2000=100)	98.8	100.4	97.5	-1.59	1.33	95.1	92.0	93.2
Exports (Tril. Yen)	5283.9	5124.1	4653.4	3.12	13.55	54548.1	52141.9	49086.3
Imports (Tril. Yen)	4431.7	4312.8	3684.0	2.76	20.30	44349.7	42229.4	42346.2
Mineral Fuels	975.5	932.3	678.1	4.64	43.85	9349.9	8173.9	8523.7
Balance (Tril. Yen)	852.2	811.3	969.41	5.04	-12.10	10198.4	9912.5	6740.1