Tom Moeller

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The Autodata Corporation reported that light vehicle sales during May fell 6.0% (+18.9% y/y) to 15.14 million units (SAAR) following a 7.4% rise during April. Despite the decline, sales remain in an uptrend since a low of 12.38 million in September of 2021.

Sales of light trucks declined 6.3% (+20.1% y/y) during May to 11.96 million units after increasing 6.8% in April. Purchases of domestically-made light trucks weakened 5.5% (+19.5% y/y) to 9.38 million units after rising 5.6% in April	. Sales of imported light trucks fell 8.8% (+21.7% y/y) to 2.58 million units after improving 11.0% during April.

Trucks' share of the light vehicle market eased to 79.0% last month from 79.3%.

Auto sales fell 4.8% (+14.8% y/y) last month to 3.18 million units following a 9.5% April increase. Purchases of domestically-produced cars declined 5.7% (+20.9% y/y) to 2.31 million units after rising 11.4% in April. Sales of imported autos weakened 2.2% (+1.2% y/y) to 0.87 million after strengthening 6.0% in April.

Imports' share of the U.S. vehicle market slipped last month to 22.7% from 23.1% in April. Imports' share of the passenger car market rose to 27.4% in May from 26.7% in April. Imports' share of the light truck market eased to 21.6% in May from 22.2% in the prior month.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Light truck sales lead latest downturn.
- Imports' market share eases.

U.S. Light Vehicle Sales Decline in May

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The Housing Market Index, compiled by the National Association of Home Builders/Wells Fargo, rose 7.0% (35.3% y/y) in November to 46 after rising 4.9% in October. It has increased from a low of 34 twelve months earlier but remained below the break-even point of 50, where it’s been since April. The index stands below a July 2023 high of 56 and a November 2020 peak of 90.

The rate on a 30-year fixed rate mortgage averaged 6.79% in the first two weeks of November versus 6.43% in October. It remained below the high of 7.79% in the last week of October 2023, according to Freddie Mac.

The single-family sales measure rose 4.3% (22.5% y/y) to 49 this month from 47 in October. It was the highest reading since May. The prospective sales index in six months rose 12.3% (64.1% y/y) to 64 from 57 in October. It was the highest level since April 2022. The traffic of prospective buyers’ index improved 10.3% (52.4% y/y) to 32 in November. It was the highest level since April, up from a low of 25 in August.

Housing performance across the country was mixed in November. The Northeast index rose 13.5% (11.3% y/y) to 59 from 52. It was the highest level since June. The index for the Midwest improved 14.0% (58.1% y/y) to 49 from 43 in October. Moving lower, the index in the South fell 2.3% (+20.0 y/y) to 42 and remained below the recent high of high of 52 in March. The index in the West declined 11.4% (+39.3% y/y) to 39 from 44 in October. The index hit a low of 28 in November of last year.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. The regional indexes run back to December 2004.

These data are included in Haver's **SURVEYS** database.



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- Overall reading is highest since April.
- Each component improves.
- Regional indexes are mixed.


U.S. Home Builders Index Improves in November

Robert Brusca

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The EMU trade surplus rose in September to €13.5b from €10.8b in August.   However, the average surplus size has been shrinking as the 12-month average is €14.9b, the 6-Mo average is €13.9b, and the 3-Mo average is €12.4bl.  The September surplus has risen above its 3-month average but does not seem to be part of a trend.

The table chronicles the gradual erosion in the trade surplus on manufacturing trade from 12-mo to 6-mo to 3-mo.  On the same timeline the deficits on non-manufacturing trade in EMU has become only slightly smaller partly offsetting the effect of the shrinking manufacturing surpluses on the overall trade picture.  

Export trade trends for total trade as well as for Manufacturing and nonmanufacturing viewed separately show no clear trend on the 12-Mo to 6-Mo to 3-Mo timeline. 

Import trends show overall acceleration that is supported by both accelerating manufacturing imports and non-manufacturing imports. 

The Euro-Area trade data are for net flows in and out of the whole area with intra-regional trade netted out. The EMU area is showing an acceleration in imports that suggests a strengthening in demand. However, the area’s exports are not picking up in step. These trends are not borne out in the month-to-month changes but are fully reflected in the sequential averages. 

However, it is too soon to view Europe as in recovery or out of the woods based on some strength in imports. While the sequence of import growth rates improves steadily over shorter periods, the more reliable year-on-year rate of growth for imports still register declines for overall imports driven by more extreme weakness in non-manufacturing imports. 

While exports are not trending to stronger growth, at least export flows appear to be stable with positive growth rates for the most part. Manufacturing exports gain 1.2% over 12-months and rise at a 0.8% annual rate over three-months.  The nominal growth is slow and is indicating only slow decay in real terms 

Country level data are, of course, of a very different quality, since these data are by the reporting country and will include as ‘exports’ goods sent anywhere outside that country’s borders which will include exports within the Euro-Area itself. On this basis German exports and imports are declining and decelerating.  France shows exports steadily accelerating with imports not trending but clearly declining on all horizons.  The UK, a non-EMU/NonEU country, shows exports reviving from a steep negative 12-month growth rate to show strong gains over three months. Meanwhile, UK imports also recover from steep year-on-year declines to post a more neutral result over three-months.  On the export side alone Finland shows exports growing on all horizons while Portugal and Belgium show export growth turning negative over shorter horizons.

On balance, EMU and European trends are mixed. There is some hint of stabilization on the import side, but that trend development is new and not echoed by year-over-year strength. Germany and France, the two largest EMU economies, both show consistently weak imports.  There is precious little good news in the September trade report from EMU. 


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Europe

EMU Trade Surplus Rises

Tian Yong Woon

In this week’s letter, we focus on China. The Chinese economy has shown early signs of a pickup in recent weeks, following a series of easing measures. However, these signs do not yet suggest a full-scale economic rebound, and observers remain uncertain about whether the economy will meet its 5% growth target for the year. We also explore China’s latest debt swap program for local governments, which many see as a positive step. Nonetheless, some are underwhelmed by the scale of the RMB 10 trln program, which is small compared to the estimated size of local governments’ "hidden debt". In addition, we address broader structural issues likely to continue as points of contention between China and other major economies, and most notably the US. Issues include China’s persistent current account surplus and concerns about its overcapacity. We examine the potential impacts of this overcapacity, from its detrimental effect on domestic industries in receiving economies to the deflationary pressures from Chinese exports. Additionally, we touch on the financial flows resulting from China’s export revenues. Finally, we end on a more positive note, highlighting China’s progress in its green energy transition, with some forecasters predicting that China will reach peak carbon emissions within the next year or two.

**Recent developments**
The Chinese economy has picked up pace in recent months, following a series of easing measures introduced by authorities. These measures include interest rate cuts, relaxed property restrictions, and, more recently, a debt swap program for local governments. Of particular note is the official manufacturing PMI, which has returned to expansionary territory (Chart 1) for the first time in six months. More broadly, the economic surprises from China have shifted back to more neutral levels, following a period of disappointing results. However, while there are encouraging signs of a turnaround, these developments do not yet point to a full-scale economic rebound.

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Delving deeper into China's debt swap program for local governments, the plan will raise the debt ceiling for special bonds by RMB 6 trln ($830 bln) over the next three years, enabling local governments to refinance the "hidden debt" accumulated through Local Government Financing Vehicles (LGFVs). Additionally, local governments will be allowed to use up to RMB 800 bln ($110 bln) annually for refinancing LGFV debt over the next five years. Nonetheless, local governments in China have already increased bond issuance in recent months (Chart 2). While the new program is viewed as a positive step, many observers remain underwhelmed by its scale. Despite the RMB 10 trln package being significant, it is still far smaller than estimates of the total "hidden debt" carried by local governments. For instance, the IMF estimates China’s LGFV debt at RMB 60.2 trln as of 2023, projecting it will rise to RMB 65.6 trln in 2024. If these estimates are accurate, the debt swap program would address only a small fraction of local governments' overall debt burden.

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**Broader structural topics**
Turning to broader structural issues, China’s current account surplus remains persistent and large (Chart 3), drawing criticism from major economies about the impact of these imbalances on their own economies. While the rebound in outbound tourism by Chinese travelers has helped partially offset China's significant goods trade surplus by contributing to a services deficit, this has not been enough to fully offset the significant goods surplus. The drivers and consequences of China’s economic imbalances are complex. For example, China’s industrial policies in sectors such as electric vehicles (EVs) have drawn criticism from the US and several European countries. These policies are likely to remain a key point of tension in US-China relations, especially with US President-elect Trump’s imminent return to leadership next year. These economies believe that China’s overcapacity and extensive use of state subsidies distort global markets, to the detriment of their domestic industries. However, China argues that there is no overcapacity, and that its comparative advantage in sectors like EVs is the result of market competition, not government intervention.

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Another dimension through which China’s overcapacity is manifesting is in the sharp decline in unit export values, which have been falling for over a year (Chart 4). Key concerns in receiving economies revolve around China's overcapacity in sectors like steel, home appliances, and electric vehicles (EVs). This overcapacity has led to massive exports of cheap goods that far exceed domestic demand in China. While these exports technically contribute to China's GDP growth, they are undermining local producers in receiving economies, who struggle to compete with prices that are unsustainably low. This creates a significant challenge for local industries, potentially driving some out of business. Moreover, the influx of inexpensive Chinese goods can lead to deflationary pressures in receiving economies, as falling export prices push down the overall cost of goods and services.

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China’s persistent current account surplus means its substantial export revenues must be reinvested somewhere. A key channel for this reinvestment is the acquisition of foreign assets, with US long-term securities being a major recipient, particularly US Treasuries (Chart 5). The majority of China’s US holdings are in the form of Treasuries, with US corporate equities constituting a much smaller share. In effect, China has been financing the US trade deficit by purchasing US government debt. Over time, China has become one of the largest foreign holders of US Treasuries, second only to Japan. However, it is important to note that China's holdings of US Treasuries appear to have peaked in the last decade, with its investments in these securities actually declining in recent years.

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**Some bright spots**
We conclude this week’s letter on a more optimistic note, highlighting China’s rapid progress in its green transition over the past decade. China’s swift development and adoption of green technologies have led many forecasters to expect the economy to reach peak carbon emissions within the next year or two. That said, much of China’s emissions profile, with carbon dioxide as the dominant contributor, remains closely tied to energy demand, which drives consumption (Chart 6). This is understandable, as while China’s green energy transition has been impressive, it remains incomplete, with a significant portion of its energy still sourced from coal. As a result, if China’s energy demand increases—driven by factors such as stronger global demand for manufactured goods—overall emissions could rise again, especially if the impact of its ongoing green energy adoption does not fully offset this surge. However, if China’s green energy transition continues to gain momentum and proves sustainable, we could see a decoupling of the relationship between energy consumption and emissions in the future.

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Asia

Economic Letter From Asia: Talking China

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Industrial production in the United Kingdom fell by 1% in September after rising by 1.3% in August and falling by 1.3% in July, continuing a choppy pattern. In September output declined for capital goods, for intermediate goods, and for consumer nondurable goods with consumer durable goods output unchanged on the month. This bevy of declines followed monthly output increases across all sectors in August which followed output declines in all sectors in July. The monthly output trends have had all this stability of a car suspension on a cobblestone road.

Beyond the monthly gyrations sequential output trends show output getting progressively weaker. Manufacturing output falls by 0.7% over 12-months; it declines at a 2.4% annual rate over six-months and then accelerates that decline to a 3.9% annual rate drop over three-months.  However, output does not get sequentially weaker across all of the sectors; it only weakens sequentially for intermediate goods output. However, of the 12-sequential sector calculations (across 4 sectors and three periods) all of the observations are negative except three. The bottom line is that the overall trend shows output declines are becoming steeper, and the sector level observations show that output is broadly declining across sectors.

The September figure ends, data for the third quarter; in that quarter (to date) output managed to increase by 0.8% at an annual rate with increases in all of the sectors except capital goods where output fell in the third quarter at a 1.7% annual rate.

Looking at some key industry details, we see quarter-to-date declines or flat performance at all industries in the table except for food, drink, & tobacco where there's a 1.8% annual rate increase in the third quarter.

The UK remains in a troubled spot and although the Bank of England has started to reduce interest rates, it has done it in an environment where inflation is not entirely behaving and perhaps this is because of the observation that economic growth is so weak and the belief that with growth this week inflation excesses will not be able to persist.  Weak manufacturing is a global phenomenon. The UK does not set itself apart from the countries of the G7 by posting weak industrial results. It is unclear when there will be a turn-around in global manufacturing. The US economy that often leads business cycles is showing some signs of doing better, but its manufacturing data have not turned around partly because its economy has been hit by a significant strike and by a series of hurricanes that have interrupted the good sector of the economy. The outlook remains unclear and marred by ongoing geopolitical tensions with governments staffed by new participants all around.


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United Kingdom

UK Manufacturing Weakens