By Claus Vistesen: Copenhagen

One cannot fault the good journalists for trying, one really can’t. Yet, as hard as they tried they could not get President Trichet to concede that the ECB has now entered some form or state of quantitative easing as well as they could not wring an answer as to whether the 1% interest stance would constitute an intermediate floor for the ECB policy rate. Before, however, we get ahead of ourselves let us begin with the beginning.

The almost trivial outcome of today’s council meeting in Frankfurt was actually the decision to push the main nominal interest rates down 25 basis points to 1%. If anything, risks to this decision seemed to come from the upside in the sense that all the talk of impending green shoots and second derivatives would make the ECB pause. What was always going to be much more interesting at this meeting would be whether the ECB would announce a series of those famous unconventional monetary measures, and if so; what they would be. In their comment leading up to today’s decision, Danske Bank economist Frank Øland pointed out that he expected some form or measure of buying paper or assets. For my own part, I mused a bit on what the heck the ECB was saying in the first place conceding that talks about unconventional measures were indeed popping up in the statements of council members.

Consequently, the ECB brought three things to the table today in the form of longer term refinancing operations, the decision to let the European Investment Bank become eligible counterparty to the Eurosystem’s monetary policy operations and most importantly a decision to, in principle, start buying covered bonds of which 60 billion euros was mentioned as the headline figure.

Now, all this about principles of course is open to a wide range of interpretations and Trichet certainly had to dodge a lot bullets at the press conference regarding whether this constituted quantitative easing or not. In the dying minutes of the conference Trichet himself used the words credit easing, and I will let be up to my readers to decide what this means. The president also snubbed FT reporter Ralph Atkins in his question of whether he was allowed to write that the ECB is printing money or, as it were, sterilizing the purchases. The more interesting bit here of course is why exactly the ECB would be buying covered bonds, of all assets. In order to understand this, you basically need to go to Spain and recount the story about cedulas hipotecarias, what they mean for the Spanish financial system and the stress her banks are currently suffering. Start with this one by Edward and then this, this, and this. And if that is not enough, you can go chew on the role of the German Phandbrief. Basically, I think there is a sound economic rational behind the ECB’s decision to begins its asset purchase program on this front and whether we call it quantitative easing or not is of little matter I think. It will be most interesting next meeting to see what exactly the ECB is planning in the detail.

With respect to the economic outlook and the level of interest rates and its future change, we were served the regular bout of newspeak from the council which essentially is a reflection of the fact that the journalists were trying to get Trichet to pre-commit to an interest rate floor. Their endeavors were unsuccessful and in stead we got a rather conflicting message in the sense that while Trichet pointed out how 1% constituted no such thing as a floor, he also highlighted the idea that the current stance was appropriate and had also taken into account future weaker signals on the economy. In this light, we can only guess as to how forward looking the council believes the 1% nominal interest rate really is. Personally, I think that the extent to which the green shoots/second derivative punt continues the ECB will stand pat at its next meeting.

Economic Outlook

(click on graphs for better viewing)

Turning to the specifics of the economic situation the ECB rightfully recognised the severity of the situation in the introductory statement and pointed out that risks are still skewed to the downside even amidst green shoots. It is rather obvious that the downturn is in full force and the recession is now also biting, as it were, on the real economy. This is most obvious from the quick deterioration on the labour market as well as the general slowdown in the real sector.

In terms of inflation, the message was a bit unclear in so far as I think the fundamental discourse is counter intuitive. There is a natural reason as to why this is though in the sense that the ECB would like to be worried about deflation at the same time as it wants to be adamant about anchoring inflation expectations and ever so pointing out that whatever unconventional measures taking are temporary.

There can be no doubt that the Eurozone is teetering on the brink of deflation but since this is also primarily a base effect from a very sharp reduction in commodity prices, the ECB is happy to stick with the standard argument that although inflation should turn negative in mid year it will rebound in subsequent quarters. The fact that headline inflation is adding negatively to the overall HICP can be seen from the negative sign of the graph plotting the spread between core and the main HICP index. it is interesting to observe how the ECB is now confident that energy prices won’t lead to an entrenchment towards deflation when we all remember how the bank was terrified of second round effects from higher energy prices a year ago. Perhaps this asymmetry in the famed argument of nominal rigidities and how this may prevent the Eurozone from deflation is what disturbs me the most. Add to this of course that Trichet still maintains that the council is represent 329 million European citizens which apparently means that he does not see, or wants to mention, the fact that places such as Ireland and Spain are already well and truly bogged down in deflation. On the other hand of course, and given recent signs that commodity prices are beginning to sneak back up, we should expect the ghost of second round effects to emerge once more.

Finally, it is interesting to look briefly at financing and credit conditions where it was noted by Trichet how lending to households and non-financial corporations are still falling. Also, if we look at the annual rate of growth in the much allured M3 measure it has also fallen back steadily. Now, just as I don’t care much about the M3 when it running at 10+% I am not sure I care much now since the creation of money/deleveraging may have a life of its own beyond the M3. Of course, as Danske Bank points out basing their analysis on the lending survey there may also be a second derivative here too, but this would only echo the general sentiment expressed by Trichet in the sense that whatever stabilization we are observing it is situated at very low if not negative levels.

Turning to the evolution of credit the picture is similar. The figure which is actually underestimating the trend because of the one year moving average clearly shows though how the flow as derived by the total stock is on a clear downtrend. In both Q4-08 and Q1-09, the evolution of the stock of household loans was negative. Moreover, Danske Bank’s fine analysis of the lending survey suggests that a lot credit tightening is still clogged up in the pipeline even if the trough may have been reached. The interesing thing here will the extent to which the second quarter will see some improvement over a Q4-08 and Q1-09 which were clearly utterly abysmal. Note also that the chart to the right is an average which is of course ripe with generalizations. Basically, some economies such as Spain and Ireland are experiencing a much faster rate of contraction in credit than can be derived from this chart. Also and given the fact that this is after all a unique crisis, we really don’t know much the overall stock needs to be capped before we are “done”.

In summary, today was a quite significant meeting if there ever was one and the thing to watch is how the ECB will conduct itself in the covered bond market. As noted above, I am thinking cedulas and Spanish cajas as the main key words.

by Edward Hugh: Barcelona

Japan’s contraction showed signs of easing in March, even though the recession has now set in for the duration, the deepest point may well have been passed. The ship may be stable, but it is still far from being right side up.

Industrial Output Up On The Month

Japan’s industrial output rose in March (more than anticipated), and showed the first gain in six months, suggesting that the steepness in the plunge in production and exports may be softening. The rise followed a record 10.1 percent fall in industrial production in January and a 9.4 percent drop in February. Manufacturers also forecast further gains in production in the coming months, suggesting output may be bottoming out after the sharpest decline on record in the first quarter of the year.

Industrial production rose 1.6 percent in March, more than the 0.8 percent rise forecast by the economic consensus. In the monthly ministry survey manufacturers stated they expect output to rise 4.3 percent in April and 6.1 percent in May.

This impression is also confirmed by the latest Nomura/JMMA Japan Manufacturing Purchasing Managers Index reading, which rose to a seasonally adjusted 41.4 in April from 33.8 in March, the steepest gain since data were first compiled in October 2001. However the index remained below the 50 threshold that separates contraction from expansion for the 14th straight month.

Japan is currently passing through its worst recession since World War Two. Following a 3.2 percent slump in the fourth quarter the economy is expected to contract even more in the first quarter, despite some tentative signs of a softening in the contraction. Exports, for example, rose in March over February, the first month on month expansion since September last year.

Retail Sales Fall Again In March

Japan's retail sales fell for the seventh consecutive month in March, and were down by 3.9 percent from a year earlier in non price adjusted terms. This follows a 5.7 percent drop in February - the steepest pace of decline since February 2002. From a month earlier, seasonally adjusted retail sales dropped 1.1 percent in March, to record their sixth straight monthly decline.

With the economy in such a sharp contraction, and unemployment rising, families are obviously apprehensive about the future, and have been spending less. Average monthly household spending declined 0.4 percent from the previous year in March, according the Ministry of Internal Affairs and Communications. The average household spent 310,680 yen ($3,186). This follows much steeper annual declines of 3.5% and 5.9% in February and January respectively. So, in line with other indicators, the household spending picture did improve slightly in March, and retail sales were not falling as fast as they had been.

Confidence among Japanese small traders rose to an eight-month high in March, adding to signs that the economic situation improved somewhat. The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 28.4from 19.4 in February, the second-biggest jump on record, according to the Japanese Cabinet Office.

Japan's consumer sentiment alos rose - to a five-month high - in March, and the confidence index climbed to 28.9 from 26.7 in February. The index has now advanced for three consecutive months since after plunging to 26.2 in December, its lowest level since the government began compiling the figures in 1982.

However, Japanese wage earners’ total cash earnings fell at the fastest rate in nearly seven years in March from a year earlier, as companies worked desperately to cut costs. Overtime pay fell a record 20.8 percent from a year earlier as many Japanese manufacturers stopped factory lines following the plunge in global demand. Total cash earnings fell 3.7 percent to 273,561 yen ($2,805) in March, the largest fall since July 2002, when wages fell 5.7 percent. It followed a revised 2.4 percent drop in February. Both disposable income and real wages have been falling sharply since the start of 2009.

Deflation Setting In Again

Japan's consumer prices - as measured by the general index - fell for the first time in more than a year in March, a sure sign that deflation is resolutely raising its ugly head again. The general index fell by 0.3%, while consumer prices excluding fresh food declined 0.1 percent from a year earlier. The core core index - excluding both food and energy - also fell 0.3%. Bank of Japan Governor Masaaki Shirakawa argued last week that he sees little risk of a deflationary spiral, even though the BoJ policy board forecast that consumer prices will drop 1.5 percent this fiscal year and 1 percent in the year starting April 2010.

Unemployment On The Rise

Japan’s unemployment rate jumped to 4.8 percent in March, the highest level in more than four years. The total number of unemployed people rose by around 670,000, or 25 percent, from a year earlier to 3.35 million in March. The unemployment rate, which was 4.4 percent in February, is now the highest since August 2004, although it is still below the post-World War II high of 5.5 percent last seen in April 2003.

But behind the headline unemployment numbers, a very significant restructuring would seem to be taking place in the labour force. If we look at the charts below (which shows the size of the “regular” - permanent contract - labour force, as well as movements in the employment of full time and part time workers), it is evident that there was a sharp drop in the regular workforce (around a million) between December and January. Since total employment did not reflect this change, it would seem that there was a significant change in the form of contract (structural reform) and this increase in temporary and part-time employment would seem to be reflected in both earning figures and spending patterns.

The Japanese economy is set to shrink by 3.3 percent this fiscal year according to the latest government forecast, and by 6.1 percent in 2009 according to the IMF spring forecast. Finance Minister Kaoru Yosano said last week that the economy remains in "crisis" as the slump in exports and factory output evidently will continue to take a toll on employment. Prime Minister Taro Aso’s Cabinet recently submitted a massive supplementary budget to finance a new stimulus package. Aso has called for a record additional 15 trillion yen ($155 billion) in government spending, equivalent to about 3 percent of Japan’s gross domestic product. The government argue the newest stimulus package will help protect the economy from slipping further while laying the foundation for future growth, including incentives for buying “eco-friendly” cars and home appliances. It also provides support for the unemployed and small businesses. However, despite such bold claims the Japanese governments hands are most firmly tied by the very large levels of existing debt (see chart below), with the IMF forecasting that Net debt will rise to 103.6% of GDP in 2009, and gross debt to a staggering 217% of GDP. So basically, however much the current stimulus package may serve to soften the blow of the downturn in global trade on Japanese households any real recovery will have to await a recovery in global trade, and despite all the current talk of “green shoots” everywhere, we are still some way from being able to perceive this at this point.

Clearing debts with your existing income without incurring further debts is termed as debt management. The task of managing debts is assigned to a third party who ensures an individual that his past debts are taken care of by flexible repayment plans having longer repayment duration. Borrowers who had borrowed lot of money in the past can consolidate all their debts and pay off with a single loan, mortgage, home equity. A stop on the negative score on credit is possible through debt management and borrowers look forward to increase their scores.

One such tool to manage debts is by taking a loan against the present property. I will stress on the UK loan market specifically which has grown in leaps and bounds because of the rising needs of the individuals be it a student or a housewife or a working professional. The loan market has brought loans which suit every customers’ pocket and fulfil his need. UK loans are available in the form of Personal loans which can be secured or unsecured.

Secured loans in the UK loan market means deriving equity out of the existing property which can fetch higher amount of credit. Unsecured loan is for people who have no houses neither do they want to keep their property at risk. A Personal loan can be taken based on the utility of the loan which could be a debt consolidation loan, home improvement loan, car loan, business loan, holiday loan, education loan or a wedding loan.

UK loan markets offer low APR which helps every individual live tension-free life by fulfilling his needs and paying off small amounts every month. One method of managing debt in UK is through IVS , individual voluntary agreement where debt is re-payed in 60 days. The law demands interest and other charges to be ceased on this loan which helps customers payback swiftly. The UK loan market has headed towards rescuing borrowers from the vicious cycle of debts via debt management which otherwise acts like a burden for the rest of the life.

by Edward Hugh: Barcelona

The global manufacturing recession continued in April, with rates of contraction for output, new orders and employment all showing what are effectively sharp contractions by historical standards. The rates of contraction however moderated almost universally, and this is now the fourth month where this moderation has been evident. Thus, while the contraction is far from over, it is reasonable to say the it has stabilised, and the big issue is at what rate it will hold in the months to come. The initial shock has now been absorbed, but that is a far cry from saying that we already have the worst behind us. The general deterioration in employment conditions raises the concern that as the impact of the government stimulus “shocks” in their turn wane, and as national banking systems come under the impact of the additional loan defaults the growing unemployment and falling property values will cause, then we may see a series of second round effects, not as severe as the initial “hit” last October, but certainly not to something to be taken lightly or “factored out of the picture” at this point.

Sharp Rise In the Headline Global PMI

The JPMorgan Global Manufacturing Purchasing Managers' Index (PMI) - which is based on surveys covering over 7,500 purchasing executives in 26 countries which between them account for an estimated 83% of global manufacturing output - posted a reading of 41.8 in April, thus coming in well below the critical 50 neutral mark separating expansion from contraction for the 11th successive month. In rising from the 37.3 level shown in March, the PMI managed to post its largest month-on-month improvement in the series history attaining in the process a seven-month high. The sharpest point in the contraction was last December, when the indicator hit the all time series low of 33.7.

The sub-indexes which track output, new orders, new export orders and employment all posted the strongest upward movements in their respective series histories, but still all remained firmly below the neutral 50.0 mark. The rates of contraction for output and new export orders eased to seven-month lows, and total new orders dropped at the weakest pace since August 2008.

The picture was a mixed one, and emerging economies generally fared rather better than developed countries. This was especially the case in China and India, the only two countries covered by the survey to actually to report increases either for output or new orders. Rates of contraction in output eased to a seven-month low in the United States and to the weakest since last October in the euro area. Output and new orders in Spain and Japan continued to fall significantly faster than the global average, but even in these cases the contraction rate improved markedly over earlier rock bottom lows.

Substantial manufacturing job losses continued in April, even if the rate of decline eased to a five-month low. Germany, Switzerland, Australia and South Africa posted series record reductions in employment. China was the only nation to report an increase in staffing levels, and India only reported slight reductions. The rate of job cutting in the U.S. slowed to its weakest since last September, but the reduction in the Eurozone was only slightly better than the series record set in March.

The Global Manufacturing Input Prices Index continued to show significant price decreases, although the reading of 35.5 was a five-month high. Still this again was a historically low reading, and, according to JPMorgan, apart from India and South Africa all of the countries for which data were available reported lower purchasing costs, with rates of decline faster than the global average in the both the U.S. and the Eurozone, giving an indication of just how extensive deflationary pressure is at this point.

Europe

Sweden

Sweden’s seasonally adjusted PMI rose to 38.8 in April from 36.7 in March, according to the latest survey from Swedbank and Silf, more or less in line with economists expectations.

The PMI was thus well below the threshold 50 reading for the tenth consecutive month, although April was the fourth consecutive month when the rate of contraction eased. Of particular interest is the fact that the employment index worsened to 28.3 from 31.1, indicating that Swedish manufacturing was shedding jobs at a faster and certainly preoccupying rate. New orders were the single biggest contributor to the rise the overall index, and the sub-index for export orders alone rose to 45.3 points in April from 39.7 March, a feature which was doubtless a by-product of the 15% decline we have seen in the value of the Krona vis a vis the euro since last summer. Sweden’s export-dependent economy is facing its worst recession since the 1940s with the global downturn hitting demand for products of key manufacturers like Volvo and SKF. The contraction is easing, but still we are far from having an end in sight, nor will we see one till demand resurfaces in some of the customer economies.

Eurozone

The pace of the slowdown in Eurozone manufacturing activity generally slowed in April, and the PMI rose to a six-month high of 36.8 from 33.9 in March.

Spain

The rate of decline in Spanish manufacturing slowed again in April (for the fourth consecutive month), and April’s PMI rose to 34.6 from 32.9 in March. This is now significantly up from December’s record low of 28.5, but the contraction remained very strong, and this was still one of the lowest readings globally.

The pace of deterioration eased in output, new orders and employment, though stocks of purchases and finished goods hit series lows. Survey responses suggested the rate of decline in the badly hit jobs market had eased slightly from earlier falls, but the reading still remained well below growth levels, and Spain’s economy continues to bleed jobs, adding to levels of employment which the latest labour force survey data suggests has now risen above 4 million (or 17.3% of the economically active population). Staffing levels have declined every month since September 2007, according to survey records.

Italy

Italy’s manufacturing business shrank at its slowest rate for six months in April, with the latest Markit/ADACI survey producing a headline PMI reading of 37.2 - significantly above March’s record low of 34.6 and beating the consensus forecast of 36.5.

In addition other recent data suggest that the lowest point may have been past with business confidence improving in April (following 10 consecutive monthly falls), and consumer morale hitting its highest level in 16 months. However Markit reported that about 40 percent of companies in the survey reported new order levels continued to fall during the month, even though at the slowest rate of decline in seven months. Output fell at its slowest rate since October, with the sub-index jumping to 35.9 in April from 32.8 in March. Overseas orders, even though they fell less sharply in April, still clocked up their 14th successive month of decline, with Markit noting that demand was particularly weak from Eastern Europe and Russia.

And job losses in Italy’s manufacturing sector showed no signs of letting up and were running at the second fastest rate in almost 12 years of data collection following the record low hit by the employment index in March.

However, saying that the “darkest hour” in this contraction may be over is not the same thing as saying that recovery is anywhere in sight. Italy’s manufacturing PMI has now not indicated growth since February 2008 and forecasts generally expect the economy to contract by around four percent this year, making for two straight years of continuous contraction for the first time since World War Two. Indeed, the Organisation for Economic Cooperation and Development has even already pencilled in a potential further contraction for 2010, which if realised will mean Italy’s economy will have been shrinking for an almost unprecedented 3 years continuously.

Germany

German manufacturing contracted for the ninth month running in April, though the pace of the downturn eased to its slowest since last November. The headline manufacturing PMI in Europe’s largest economy registered 35.4, still a very low level, but nonetheless up significantly from March’s reading of 32.4.

“April’s survey provides hope that the German manufacturing downturn has passed its nadir, as the PMI moved further above January’s record low,” according to Tim Moore, economist at Markit Economics. “However, output still fell at a rate unprecedented prior to the fourth quarter of 2008, prompting firms to trim employment and inventories to the greatest extent in the survey history,” he added.

New orders declined for the tenth successive month but at a much slower pace than in March, with the sub-index rising to 37.0 from 28.9 - a series record month-on-month rise. The improvement in the PMI results fits in with other recent sentiment indicator readings in German, with the Ifo institute’s business climate index improving in April to its best level in five months, while the ZEW investor sentiment gauge rose to its highest level in almost two years. However, we are still a far cry from a return to output growth in Germany, with most observers anticipating a GDP contraction of between 5% and 7% for 2009, and given the export dependence we should be looking for an increase in imports in main customer economies before we start thinking about any expansion in German manufacturing output.

France

The pace of decline in French manufacturing activity continued to ease in April, and the Markit/CDAF headline manufacturing PMI rose to 40.1, showing a sharp rebound from March’s final reading of 36.5. The April level was the highest since October 2008.

The new orders sub-index jumped to 41.1 from 34.3 in March, while Markit also reported evidence of higher sales to clients in emerging countries, a factor which helped to slow the pace of decline in new export orders.

Other indicators published recently have shown similar positive signals, adding to the sentiment that the French economic contraction may well have stabilised. Household spending on manufactured goods rose by a stronger-than-expected 1.1 percent in March, after a 1.8 percent fall in February, while April’s consumer confidence index improved for the second successive month. However the latest employment data shows headline unemployment rising by 63,400 to 2,448,200 in March, and April’s PMI survey only added to the bleak news as firms continued to slash jobs over the month. According to Markit , despite easing to its slowest level in 2009, the rate of decline in employment remained close to January’s survey record.

Greece

Greece’s manufacturing sector also rebounded in April, with the headline manufacturing PMI rising to 40.9 from a record low of 38.2 in March. This was the seventh consecutive month of contraction. The European Commission forecasts that Greece will slide into its first recession since 1993 this year. In its spring forecasts, the Commission forecast the Greek economy would shrink by 0.9 percent this year before recovering positive growth at a rate of 0.1 percent in 2010. The largest looming problem is the budget deficit which is seen as reaching 5.1 percent of GDP in 2009 and 5.7 percent in 2010. As a result general government debt is expected to widen to 103.4 percent of GDP in 2009 and 108 percent in 2010, while unemployment is seen by the Commission at 9.1 percent in 2009 and 9.7 percent in 2010.

Eastern Europe

Poland

Business confidence in Poland’s industrial sector was lower than expected in April as new orders kept falling and job shedding continued. The ABN AMRO headline manufacturing PMI dropped marginally to 42.1 in April from 42.2 in March. This meant Poland was one of the few countries which showed a (slight) deterioration in manufacturing conditions in April. New business indicators were mixed in April, with the new orders index falling to 40.9, from 41.4 in March, while new export orders increased to 40.7, from 39.1. The total manufacturing output index fell to 42.0, as industrial companies continued shedding jobs, although at a pace slower than that seen in the first quarter. The April employment index rose to 40.2, from 39.9 in Mrch.

Output prices charged by manufacturers fell in April, while input prices fell for the first time in three months as firms reported lower prices of raw materials.

Czech Republic

The manufacturing decline slowed in the Czech Republic in April, and the headline PMI rose to 38.6 from 34.0 in March. This was the 10th straight month of contraction in Czech manufacturing, with the substantial drop in export orders being the main culprit. April did however see the third consecutive rise in the index reading. Markit said seasonally adjusted new orders remained on an upward trajectory and registered the slowest rate of decrease since last September. Czech manufacturers did, however, continue to make substantial cuts in their workforces in April, and while the employment index rose from March’s record low, it still indicated a rapid rate of decline.

Hungary

Activity in Hungary’s manufacturing sector continued to contract in April, although the pace of contraction is now down slightly from January’s all-time low. The weakness of the rebound however does underline the depth of the recession the country is now in.

The headline manufacturing PMI stood at a seasonally adjusted 40.4 in April, up slightly from the 39.5 registered in March, according to the release from the Hungarian association of logistics. This was the seventh consecutive month of contraction, following the all-time low of 38.5 hit in January. The Hungarian government currently forecasts that GDP will contract by as much as 6% this year as the German economy, Hungary’s chief export market, also faces a similar decline in GDP. Hungarian manufacturing output contracted even more in April than in March, to 37.1 from 37.6. The export index showed a further decline to 35.6 from 36.5 in March. The only positive development came from the new orders index which showed a marginal increase to 37.5 from a reading of 35.0 in March.

Russia

The latest VTB Capital headline manufacturing PMI signalled that the sector remained in a strong downturn in April, although as elsewhere the rate of decline slowed again (for the fourth straight month) hitting the almost respectable level of 43.4 (in comparison with what is being seen elsewhere). This was the highest level in six months, although (in terms of historical comparisons) the latest results provide further evidence that the sector is experiencing a longer and more pronounced contraction than that seen during the financial crisis of 1998. At that time the PMI spent seven successive months in negative territory. In comparison the current run already extends to nine months - and we are still far from the end of the process - and in addition the rate of contraction has been much more pronounced.

According to VTB the largest component of the headline PMI – new orders – showed a weaker rate of decline in April. The rate of contraction in new business has now moderated continuously since hitting a survey record in December. However, new export business declined at a faster rate in April compared to March, suggesting that while the Russian administration’s stimulus plan may be having some impact, the devaluation of the ruble is yet to make any real impact, possibly due to the hefty rate of continuing internal price inflation and also due to the sorry state of international trade.

Worthy of note is the fact that a number of survey respondents linked lower output levels to payment problems at clients as credit conditions remain challenging.

Average input costs continued to increase in April, although at a weaker rate than that seen in the previous two months. Energy prices and exchange rate fluctuations were reported by firms to have increased costs, but this was partly offset by pressure on suppliers to discount rates as underlying demand remained weak. VTB reported that competitive pressure in the manufacturing sector was evident in April as firms cut output prices for the fifth time in six months. Manufacturers also continued to cut back their workforces in April, and employment in the manufacturing sector has now fallen continuously since May 2008, and the rate of job shedding remained marked despite easing for the third month running.

Asia

Japan

Japanese manufacturing activity contracted at a slower pace for the third consecutive month in April, and the Nomura/JMMA Japan Manufacturing PMI rose to a seasonally adjusted 41.4 from 33.8 in March, the largest gain since data were first compiled in October 2001. However, the index remained below the 50 threshold that separates contraction from expansion for the 14th straight month.

The output component of the PMI index also rose for the third straight month to 39.4 from 25.9 in March. In January the index was at 18.5, the lowest on record. Japan however remains mired in its worst recession since World War Two and after a hefty 3.2 percent GDP drop in the fourth quarter of 2008 is thought to have contracted even more rapidly in the first quarter of this year, despite some early tentative signs of a recovery in exports.

China

China's manufacturing expanded for the first time in either eight or nine months (depending on which index you chose - see below) as the decline in export orders moderated and investment surged on the back of the government's 4 trillion yuan ($586 billion) stimulus package.

The CLSA China Purchasing Managers' Index rose to a seasonally adjusted 50.1 in April from 44.8 in March.

The output index climbed to 51.3 from 44.3, the first expansion in nine months, while the reading for export orders rose to 48.8 from 41.4 in March. The total new-orders index climbed to 50.9 from 43.6 and the employment index rose to 50.9 from 47.1, the first expansions in nine months for both measures.

On the other hand the official (government sponsored) China Federation of Logistics & Purchasing manufacturing index also showed growth, in this case for the second consecutive month, with the headline index rising to 53.5 in April from 52.4 in March.

There are various differences between the two indexes (for a summary of the issues raised see my last month’s post here), but the gist of the matter is that the government-backed measure is weighted more than the CLSA index toward large state-owned enterprises, which have benefited more directly from the government stimulus measures.

India

The April reading for the Indian headline manufacturing PMI is the highest in seven months and the index has now steadily risen after hitting a trough of 44.4 in December. Indeed output at Indian factories grew for the first time in five months in April, with the ABN Amro Bank’s index rising to 53.3 from 49.5 in March.

The new orders index rose to 54.9 from 49.5 in March. The return to growth was primarily driven by an improvement in domestic demand, according to the accompanying report. “Although the rise in new business came principally from the home market, there was also some, albeit slight, improvement in foreign demand for Indian manufactures,” ABN Amro Bank said in the official release.

Indices tracking trends in output and new orders continued to rise, both breaching the neutral threshold of 50 for the first time since last October, it added. It should be noted, however, that growth of both output and new orders was well below their survey averages. Along with the expansion Indian manufacturers noted renewed input price inflationary pressures. A combination of increased prices for some commodities and unfavourable exchange rates led to a moderate rise in input costs during April. This is the first time that input price inflation has been recorded in India’s manufacturing sector since October last year. However continuing competitive pressures meant that manufacturers did not pass on their cost pressures on to customers, and factory gate prices were cut for the sixth straight month. However, the latest drop in average prices was the weakest in the current period of falling output prices.

Employment levels across India's manufacturing economy were little-changed during April with increased production requirements leading to recruitment on the one hand, while cost-cutting pressures produced job losses on the other.

“The April PMI gives a very clear indication that business conditions in the manufacturing sector have improved significantly after a period of sharp contraction and gradual stabilisation. The headline PMI at 53.3 has signaled expansion in activity for the first time since October 2008. Moreover, the April reading is the strongest since October 2008,” according to Gaurav Kapur, Senior Economist, India, with ABN Amro.

“Survey data suggests that production was ramped up during April in order to cater to a pick-up demand and to build inventories. The output index printed at 55.7 for April compared to 49.3 in March, as new incoming business expanded during the month. The domestic orientation of the improvement in demand is clearly visible from the new orders index rising well above 50, even though external demand also improved modestly. New orders index printed at 54.9 as against 49.5 in March. This is critical as it suggests that domestic demand conditions are now strong and supportive for growth in the sector,” he said.

“While activity levels improved, the manufacturing sector witnessed some margin pressure, as inflation resurfaced on the input side but output prices contracted. For the first time since October 2008, input prices rose over the month of April. However, as demand conditions are improving, manufacturers could gradually be in a position to raise output prices too. It therefore appears that inflationary conditions in the economy, which remain benign currently, could see some upside pressures going forward,” Kapur added.

Americas

United States of America

Economic activity in the United States manufacturing sector contracted again in April for the 15th consecutive month, and the overall economy contracted for the seventh consecutive month according to the US Institute for Supply Management’s latest Manufacturing ISM Report On Business. According to Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, “The decline in the manufacturing sector continues to moderate…..After six consecutive months below the 40-percent mark, the PMI, driven by the New Orders Index at 47.2 percent, shows a significant improvement. While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again. The Customers’ Inventories Index indicates that channels are paring inventories to acceptable levels after reporting inventories as ‘too high’ for eight consecutive months. The prices manufacturers pay for their goods and services continue to decline; however, copper prices have bottomed and are now starting to rise. This is definitely a good start for the second quarter.”

Brazil

The seasonally adjusted Banco Santander manufacturing PMI continued to indicate a sharp contraction in Brazilian manufacturing in April. All five component indexes gave negative readings. The PMI has now registered contraction since the start of the fourth quarter of 2008. However, the reading was up for the third successive month at 44.8, suggesting a further easing in the rate of deterioration.

April's rise in the PMI reflected less severe drops in both output and new orders. Production levels at Brazilian manufacturers continued to fall, but the rate of contraction eased sharply to its weakest since last September. Declining output was predominantly attributed to unfavorable financial and economic conditions, alongside lower levels of new business. However, incoming work contracted at a noticeably slower rate than in March. Data suggested a milder decline in domestic sales, however foreign demand for Brazilian products fell at a faster pace than in earlier months.