Thursday, 30 September 2004

IMF updates world economic outlook

In its latest World Economic Outlook report, the International Monetary Fund (IMF) is projecting global economic growth of 5 percent this year, falling to 4.3 percent next year. In April, it had estimated global growth of 4.7 percent in 2004 and 4.4 percent next year.

The IMF lowered its growth projections for the US to 4.3 percent this year from 4.6 percent. For next year, growth was lowered to 3.5 percent from 3.8 percent.

For Japan, 2004 growth was raised by 1.1 percentage points to 4.4 percent, while 2005 growth was raised by 0.5 percentage point to 2.3 percent.

Meanwhile, in the US, the Commerce Department yesterday revised second quarter GDP growth up from 2.8 percent to 3.3 percent.

Today, the Japan's Ministry of Economy, Trade and Industry reported that industrial production was up 0.3 percent in August, the first rise in three months.

And with oil prices falling for the past two days, there is hope that the world economy is not about to roll over just yet.

Wednesday, 29 September 2004

Consumer spending in trouble

Yesterday, the Conference Board in the US reported that its consumer confidence index for September fell to 96.8 from a revised 98.7 last month. The Conference Board's present situation index fell to 95.5 from 100.7 in August while the expectations index was virtually unchanged at 97.6 compared with 97.3 last month.

In Japan, the government reported that retail sales fell 1.8 percent in August compared with the same month a year earlier, slightly weaker than a 1.4 percent drop forecast by economists in a Reuters poll. Compared with July, retail sales fell 0.1 percent on a seasonally adjusted basis, the Ministry of Economy, Trade and Industry (METI) said.

It looks like the world economy will not be getting much of a boost from consumer spending in the two largest economies.

Tuesday, 28 September 2004

Singapore factory output up in August amid improving US data

Singapore's manufacturing held up well last month, despite a fall in biomedical output.

Singapore's factory output rises 5.3% in Aug from a year ago
Singapore's manufacturers produced 5.3 percent more goods in August compared with a year ago, says the Economic Development Board on Monday. It was well below market expectations for a 7.4 percent rise.

The growth pace slowed sharply from July's 19.1 percent on-year rise as the production of drugs and other biomedical products plunged. On a seasonally adjusted month-on-month basis, manufacturing output last month fell 1.1 percent, compared with a revised gain of 2.6 percent in July.

Excluding the biomedical sector, whose output can swing sharply from month to month, Singapore's industrial production index rose 20.2 percent from a year ago compared with a rise of 18.6 percent in July. This has led economists to conclude that the underlying growth momentum in manufacturing remains intact, and that the economy is on track for 8 to 9 percent growth this year.

Last Friday, the US Commerce Department had reported that US durable goods orders were down 0.5 percent in August but, excluding transportation equipment, were up 2.3 percent. Yesterday, the Commerce Department reported that sales of new homes rose 9.4 percent in August.

These figures indicate that the US economy may be "regaining traction" after all. Normally, that would augur well for production in Asia -- including Singapore -- in the months ahead.

However, with NYMEX crude oil surging past US$50 a barrel to a new record today, oil prices will be a major headwind to economic growth.

Monday, 27 September 2004

Asian stocks down as oil surges past $49

Asian stock markets were mostly down today as NYMEX crude oil surged past US$49.

Tokyo’s Nikkei 225 closed 0.3 percent down to finish at 10,859.32, the Taiwan Weighted Index closed at 5,849.22, down 0.7 percent, while Hong Kong's Hang Seng Index closed at 13,021.90, down 0.3 percent.

Singapore's Straits Times Index was the only gainer, closing at 1,983.39, up 0.5 percent.

With the northern hemisphere winter coming, NYMEX crude above US$50 now looks very probable. Despite all the talk about oil still being cheaper in real terms than in the late 1970s, such a large rise in oil price over the past year must have a negative impact on the world economy.

Friday, 24 September 2004

No evidence offshore outsourcing impacts US jobs

The US Government Accountability Office (GAO) has just issued a report stating that there is no evidence that offshore outsourcing of service jobs to India, China and other low-wage countries has affected the US job market.

The GAO stated that as high-technology jobs have been lost since the technology stock bubble burst in 2000, "the reasons for these declines cannot be specifically linked to offshoring".

This reminds me of a study done about two years ago by the Singapore Ministry of Trade and Industry on whether China had been the cause of the decrease in foreign direct investment to ASEAN. That study concluded "that the Asian Financial Crisis, rather than China, has been primarily responsible for the decrease in...FDI flows".

The problem in such studies is that it is difficult to disentangle the various potential factors and determine exactly which of them are the actual causes of the condition being studied. So failure to find evidence that offshore outsourcing of service jobs affects the US job market does not necessarily mean that it does not, just as failure to find evidence that increase in FDI in China negatively affects FDI in ASEAN does not prove that it does not.

US economic indicators point south

There was more bad news on the US economic front yesterday.

The Conference Board reported that its index of leading economic indicators declined by 0.3 percent in August to 115.7. In July, the index had fallen by 0.3 percent and in June, by 0.1 percent, making the August decline the third in a row.

Separately, the US Labor Department reported that the number of workers filing new claims for unemployment benefits increased by 14,000 to 350,000 last week. A department spokesman attributed most of the rise to the recent hurricanes in Florida.

Federal Reserve chairman Alan Greenspan has been saying recently that the US economy is regaining "traction". The rest of us are still waiting for the evidence.

Mild inflation in Hong Kong and Singapore

Hong Kong and Singapore saw mild inflation in August.

In Hong Kong, consumer prices rose 0.8 percent from a year ago. This was a slight moderation from the 0.9 percent rise in July.

In Singapore, consumer prices rose 1.6 percent from a year ago. Compared to July, prices were up 0.1 percent. In addition to higher oil prices, part of the on-year inflation rate was attributed to a one-percentage point increase in the goods and services tax in January.

The inflation figures are consistent with those from much of the rest of the world. Despite record-high oil prices, little of that seems to be flowing through to consumer prices.

Thursday, 23 September 2004

ADB updates Asian economic growth forecasts

The Asian Development Bank yesterday released an update of its growth forecasts for the region.










Hong Kong















South Korea



Singapore is expected to be among the strongest performing Asian economies this year, growing at 8.1 percent this year. However, its economy is expected to decelerate to 4.2 percent growth next year.

The Singapore stock market has probably already discounted this year’s strong growth, the Straits Times Index having risen 12.7 percent since the beginning of 2004.

Wednesday, 22 September 2004

Fed raises funds rate

As widely expected, yesterday the Federal Open Market Committee raised its target for the federal funds rate by 25 basis points to 1.75 percent. Excerpt from its press release:

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly. Despite the rise in energy prices, inflation and inflation expectations have eased in recent months.

The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

In a report released earlier yesterday, the Organisation for Economic Cooperation and Development (OECD) cut its 2004 forecast for US economic growth to 4.3 percent but raised its growth predictions for the euro zone and for Japan. The latest forecasts for the major OECD economies are as follows:


Latest forecast

Previous forecast
















Despite the upgrades, Europe -- especially Germany -- remains a laggard. If consumer and business spending fails to hold up in the US over the coming months, there would not be too many obvious alternative sources of growth for the world economy.

The unsustainable US current account deficit

An interesting post by Brad DeLong on the "unsustainable" US current account deficit and why it persists despite widespread fears of disastrous consequences.

In my opinion, the US current account deficit is the consequence of an overvalued US dollar combined with loose monetary and fiscal policies. The latter encouraged consumption and the former encouraged that consumption to be satisfied from overseas.

To reverse the deficit would mean that either the US dollar has to fall -- which might cause a recession in export-dependent countries in Asia -- or economic policy has to be tightened to curtail consumption -- which might cause a recession everywhere.

The choices aren't that enticing.

Monday, 20 September 2004

StarHub launches IPO

Singapore telecom operator StarHub has launched its IPO, offering 482 million vendor shares at a maximum price of S$1.15 a share. The final offer price is expected to be fixed on 6 October. BT and Singapore Press Holdings will be selling most of their stakes in the IPO.

With only vendor shares on offer and the company still making losses in the face of competition from MobileOne and Singapore Telecom in a saturated market, I think investors will need to be very price-sensitive to make money from this IPO.

Saturday, 18 September 2004

More signs of slowdown in chip industry

There are more signs of a slowdown in the global chip industry.

Eyeing Downturn, Chip Makers Trim Equipment Buying
The semiconductor industry is showing the first signs of slowing growth, trimming purchases of raw materials and production equipment as demand slows, industry executives and analysts said on Tuesday.

Taiwan's contract microchip makers...are beginning to ease production and may not operate at full capacity in the fourth quarter, said a raw materials supplier. "Companies should be reacting to Christmas demand by August, but they have not been aggressive," said a top executive of a company supplying raw materials to Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC), the world's top contract microchip makers. "Wafer starts are slowing down," he said...

Top contract microchip maker TSMC and its main competitor UMC have posted record high revenues in the past several months as their plants run at full throttle. But the executive said he expected TSMC's capacity utilization to drop to 95 percent in the fourth quarter, while UMC would drop to 90 percent...

iSuppli expects second-half global semiconductor revenues to expand 20 percent from the year-ago period, slowing from 30 percent growth in the first six months before eventually easing to 11 percent growth in 2005.

Semiconductor Equipment and Materials International (SEMI), a trade association of U.S. manufacturers of chipmaking gear, said monthly U.S. bookings of equipment had flattened out to around US$1.6 billion in the last three months.

In fact, orders for equipment used to produce microchips fell to US$1.52 billion in August, down 5 percent from July, according to Semiconductor Equipment and Materials International.

However, George Cwynar, chief executive of memory-chip specialist Mosaid Technologies, told the company's annual meeting on Friday that he is anticipating its key markets to grow at a slower pace in the coming quarters but a downturn in the industry won't come until 2006 (see report).

Friday, 17 September 2004

Singapore's August exports up strongly

The Singapore economy continues to power ahead.

Singapore's August non-oil exports up 29% on-year to S$11.5b
Singapore's key exports rose a better-than-expected 29% on year to S$11.47 billion in August, boosted by sharp gains in the shipments of pharmaceutical and petrochemical products.

A report by International Enterprises Singapore on Friday says seasonally adjusted, non-oil domestic exports expanded 4.8 percent last month from July.

Little wonder that the government has also become more optimistic about the economy.

Singapore's economy may register double-digit growth this year: Manpower Minister
Manpower Minister Ng Eng Hen says Singapore's economy is recovering and the country may even register double-digit economic growth this year.

If achieved, it would be the first time in 10 years that Singapore's economic growth is over 10 percent.

And it would make Singapore the fastest growing economy among Asia's 12 largest economies, beating even China's red-hot economy.

Singapore stocks rose today, with the Straits Times Index edging up 6.44 points to finish at 2003.56.

Low inflation in US in August

The latest indicators continue to show a mixed picture on the economic outlook.

US August Inflation Mild, Job Claims Rise
U.S. consumer prices inched up just 0.1 percent last month as gasoline and car prices tumbled, the government said on Thursday in a report suggesting an inflation spike earlier this year was an aberration. A separate report showed initial claims for jobless benefits gained less than expected last week, implying the job market was a touch stronger than analysts had thought. For the first time in weeks, the claims data appeared unaffected by hurricanes, the Labor Department said.

Like the overall consumer price index, the so-called core CPI, which strips out volatile food and energy prices, also moved up just 0.1 percent, the department said. The report presented a tamer inflation picture than Wall Street had expected. Economists had looked for a mild 0.1 percent gain in the overall CPI, the most widely used gauge of U.S. inflation, but had expected the core index to rise 0.2 percent...

First-time claims for state unemployment aid rose 16,000 to 333,000 in the week ended Sept. 11 from a revised 317,000 a week earlier, the department said. Wall Street had looked for claims to rise more sharply to 340,000.

There is still little sign of inflation. This is more consistent with a softening economy rather than an accelerating one. The moderate rise in first-time unemployment claims is a good sign, though.

The low inflation figures may moderate Federal Reserve interest rate hikes going forward. It's questionable, though, that that is necessarily good for stocks if it reflects a weak economy.

Thursday, 16 September 2004

US industrial production in August disappoints

Yesterday's Federal Reserve report on US industrial production again disappointed economists. Production rose 0.1 percent in August, below forecasts for a 0.5 percent gain. Capacity utilisation was 77.3 percent in August, the same as the previous month.

Mitigating the disappointment is the news that July's output was revised up to 0.6 percent from 0.4 percent. Also, manufacturing output grew 0.5 percent in August and factories operated at 76.8 percent of their full capacity, the highest rate since March 2001.

A separate report showed that US business inventories rose 0.9 percent while retail inventories rose 0.6 percent in July. Whether the increases foreshadow a decline in production or an increase in demand, however, is still a matter of debate.

See "Industrial Production Nearly Stalls".

What seemed most significant to me, though, is that the general trend of disappointing economic and financial indicators remains more or less intact.

Yesterday's falls notwithstanding, US stock markets had recently given indications that they may be getting ready for a breakout from the current trading range. In my opinion, an economic slowdown by itself would not have precluded a stock market rally.

However, as long as economists and analysts remain overoptimistic about the economy, I don't see how a major rally in stocks can occur.

Wednesday, 15 September 2004

Sales slow as US debts threaten economy

The US Commerce Department reported yesterday that US retail sales fell 0.3 percent in August. However, excluding autos, sales rose 0.2 percent.

The department also reported yesterday that the US current account deficit rose to a record US$166.2 billion in the second quarter, well above analysts' expectations for a $159.35 billion deficit.

See "Retail Sales Down; Trade Gap Larger".

The retail sales were actually not too bad. After revision, July total sales had risen 0.8 percent, so some reversal isn't too disconcerting. Considering the debt burden that the American consumer is bearing, it's a minor miracle that sales have held up as well as it has.

And with the persistent US current account deficit, maybe it's not too bad a thing for retail sales to weaken a little to correct the imbalance. That imbalance is likely to be corrected sooner or later, to some extent or other.

In a recent paper, Dean Baker, co-director of the Center for Economic and Policy Research, warns that US household debt and foreign debt have been rising at rates that may have serious implications for the long-term health of the US economy (see "Dangerous Trends: The Growth of Debt in the U.S. Economy").

I discuss this paper in my post "US debt trends threaten economy".

Tuesday, 14 September 2004

US stocks up, helped by technology

A rise in technology stocks helped the US stock market finish higher yesterday. The Nasdaq Composite Index rose 16.07 points, or 0.9 percent, to 1,910.38, its first close above 1,900 since July 20. The Dow Jones Industrial Average and the S&P 500, however, made marginal gains of just 1.69 points to 10,314.76 and 1.89 points, or 0.2 percent, to 1,125.81, respectively.

After the recent weakness in the market, some brokers are turning more optimistic again. Smith Barney has increased its recommended equity allocation to "overweight" and lowered its cash weighting, citing a more constructive view for 2005, while J.P. Morgan Securities strategists raised their end of 2004 S&P 500 target to 1,200, from 1,150.

For more details, see "U.S. stocks end higher; Nasdaq back above 1,900".

STI closes in on 2,000

Yesterday, the Straits Times Index (STI) closed 18.09 points higher at 1,985.79, its highest close since 13 February 2001.

According to a report in The Straits Times today, some analysts think that the STI should be able to rise above the 2,000 level soon.

Yesterday's rise took the STI another step closer to breaching the psychologically important 2,000-point level -- a feat which analysts had earlier predicted would take place in the next six to 12 months.

"We believe that the STI will approach its estimated fair value of 2,150 (or 14 times forecast market earnings in 2005) by the first quarter of 2005," said Merrill Lynch in a research report last Friday, fanned by "market-friendly corporate events" such as the takeover bids by Temasek Holdings for United Overseas Land and Neptune Orient Lines. Earlier, JP Morgan raised its year-end target for the STI to 2,011 points from an earlier estimate of 1,938, while DBS Vickers set a target of 2,100 by year-end.

But sounding a note of caution, UBS said "conditions are not conducive to a broad-market rally for 2005 due to rising interest rates and falling earnings per share growth". However, it predicted a fair value of 2,200 points for the STI in the next six months, based on the projected price targets for individual STI-linked stocks.

I tend to agree with UBS. Based on projected earnings, the index stocks appear decently valued. However, in the recent market rally, the breadth has been relatively narrow. While the STI is making multi-year highs, the UOB Sesdaq index for small-cap stocks -- at 93.69 based on yesterday's close -- is still 25 percent below last year's peak of 124.79.

So, in what may be the last leg of the bull market, the blue chips are likely to outperform the broad market over the next few months.

Monday, 13 September 2004

Economists should pay more attention to the emerging giants

Barry Ritholtz asks: Why have Economists been so wrong -- and by so much, and for so long -- about Job Growth?

He thinks accelerated depreciation of capital spending is part of the reason. Possibly.

Personally, though, I don't see why offshore outsourcing can't explain most of the disparity between economists' projections and the actual numbers. After all, the emergence of China and India almost simultaneously is really a once-a-generation phenomenon (see my earlier post on this).

Imagine -- a third of the world's population suddenly competing to take away your jobs. Well, I can't imagine too many economists having models that can deal with that.

As a start, though, they should probably pay more attention to what's happening in these two countries. Today, China reported "a marked slowdown in investment and money supply growth on Monday, but stubbornly high inflation suggested it was too early to rule out further steps to cool the world's seventh-largest economy" (see "China investment slows but inflation stays high").

The slowdown in investment is needed for China's overheating economy, but high inflation could be a sign that it's too late to try to achieve a soft landing.

Saturday, 11 September 2004

Japanese economy slowing faster than expected

Japan's second quarter GDP growth was revised downward yesterday, indicating that the economy is slowing faster than previously expected.

Japan pares forecast amid signs of slowdown
The Japanese government on Friday unexpectedly lowered its estimate for second-quarter economic growth to an annual rate of 1.3 percent from an initial estimate of 1.7 percent, quelling hopes that the robust expansion seen earlier in the year might continue... Financial markets rarely pay much attention to revisions to the gross domestic product data because they are not thought to reveal much about the future direction of the economy. But stock prices fell sharply following the report Friday. The Nikkei 225 average declined 87.73 points to finish at 11,083.23.

Investors may have taken fright because the growth revision seemed to confirm recent, more forward-looking economic data that also points to a slowdown for Japan's two-year-old recovery. On Thursday, the government reported that machinery orders fell a surprisingly steep 11.3 percent in July from the month before amid weak demand by manufacturers of cars, transportation equipment and semiconductors.

One hopeful sign from yesterday, however, is an improvement in Japanese consumer sentiment.

Japan consumer sentiment in August highest in over 13 yrs
Consumer sentiment in Japan for August hit the strongest level in more than 13 years, reflecting a brighter outlook in all four components surveyed, the government said Friday. The Cabinet Office said the unadjusted consumer confidence index for nationwide households, excluding single-person households, rose 0.5 point from July to 49.2, the highest reading since 49.4 marked in June 1991. The index gained 3.8 points to 48.7 in July.

Much of Japan's earlier growth had depended on improved final demand from the US. The hope must be for a sustained rise in Japanese consumer spending to turn the economic recovery into a prolonged growth trend.

Friday, 10 September 2004

Marc Faber sees weak US economy

Investment guru Marc Faber made an appearance on CNBC's Asia Market Week today.

Faber thinks that with consumer spending weakening, the US economy is slowing down. He thinks that Federal Reserve chairman Alan Greenspan's monetary policy may be behind the curve, and that the Fed may have to start cutting interest rates by next year. This reduction in interest rates would help boost Asian equities. However, he does not recommend buying US equities.

Other investments he recommends include gold, the Singapore dollar and Vietnamese property.

Thursday, 9 September 2004

Alan Greenspan says economy regained traction

Federal Reserve chairman Alan Greenspan said yesterday that the US economic expansion "has regained some traction" after a soft patch earlier this year. US stocks, however, weren't too impressed, and were mostly lower at yesterday's close.

The following comments from RealMoney editor Aaron Task are extracted from

Between Greenspan Lines Is Concern
Market participants and pundits rejoiced early Wednesday when Federal Reserve Chairman Alan Greenspan told Congress the economy has "regained some traction." But early gains receded amid a re-evaluation of Greenspan's comments and a less-than-robust beige book report from the Fed...

I don't want to make too much of one session (always dangerous): Trading volume remained subdued and declining stocks outpaced winners by a modest spread on both exchanges. Still, the message of the financial markets Wednesday was that Greenspan wasn't so upbeat about the economy after all, especially in conjunction with the beige book. Either that, or that Greenspan wasn't so upbeat about the economy, and yet he's still determined to raise interest rates, which isn't good news for the economy or equities.

The US economy has been finely poised for quite a while. Personally, I don't think Greenspan himself knows much more than other economists how the economy will perform going forward. As additional economic indicators become available, he will no doubt fine-tune his stance. I think investors buying or selling on his comments yesterday risk reading too much into them.

Tuesday, 7 September 2004

Asian markets rise, led by Philippines and Singapore

While there is still no sign that the global economy is getting out of its recent slowdown (see "Still no clear indication on world economy"), some stock markets in Asia seem to be anticipating an upturn of sorts.

Today, with most Asian stock markets rising, the Philippine Stock Exchange Composite Index posted the biggest percentage advance, rising 2.3 percent to 1671.76. Singapore’s Straits Times Index rose 1.24 percent to close at 1,961.47. Both markets are at their highest levels since February 2001.

UMC posts record sales in August

The chip glut doesn't seem to be affecting Taiwanese chipmaker United Microelectronics Corp. At least not yet, anyway.

Taiwan chipmaker UMC posts record monthly revenue in August
Taiwan chip giant United Microelectronics Corp. Tuesday reported record monthly revenue in August. The world's No. 2 contract chipmaker said revenue rose 64 percent to 11.51 billion New Taiwan dollars (US$339.2 million; euro 280.7 million) in August from NT$7.01 billion the same month last year. The August figure beat the company's previous record of NT$11.20 billion (US$330 million; euro 273.1 million), set in July. Revenue for the first eight months of 2004 totaled NT$77.22 billion (US$2.27 billion; euro 1.88 billion), up 44 percent from NT$53.62 billion for the first eight months of 2003, UMC said.

Analysts, however, do expect the chip downturn to affect UMC and other chipmakers in the following months.

Monday, 6 September 2004

Too busy for shareholders

A few companies listed on the Singapore stock exchange have struggled with the new requirement for companies to submit their full-year results within 60 days.

In The Straits Times today, one such company, Kyodo-Allied, who submitted their results for the year to 30 June 2004 on 31 August -- a couple of days late -- gave the excuse that its directors were too busy.

When people say they are too busy to complete a particular task, it usually means one of two possibilities to me. One is that they don't know how to plan their time. The other is that the task is not high enough on their list of priorities.

Don't know how to plan their time? Reporting to shareholders not a high priority? Either reason for late submission shouldn't be too comforting for shareholders of these companies.

Saturday, 4 September 2004

144,000 jobs in August

The number of jobs added in the US economy finally came close to consensus.

Job Picture Brightens with August Hiring
The U.S. job market brightened modestly in August as employers added 144,000 workers to payrolls and weak hiring tallies for the two prior months were revised up, the Labor Department said on Friday. With the uneven jobs recovery a hot topic in the race for the White House, the department said the August unemployment rate fell to 5.4 percent -- the lowest since October 2001 -- from 5.5 percent in July. The figures, though slightly short of Wall Street expectations, were strong enough that economists saw more U.S. interest-rate rises on the horizon.

Meanwhile, the New York-based Institute for Supply Management offered a mixed view of the service sector. ISM's index of non-manufacturing activity fell to 58.2 in August, the lowest level of the year, from 64.8 in July. However, a gauge of hiring plans rose, leaving unresolved whether the huge sector was poised for growth or stalled...

A month ago, the government said 32,000 jobs were created in July. It more than doubled that on Friday to 73,000 and said 96,000 jobs were created in June, up from 78,000.

Personally, though, I am not too impressed with the number. It's about the level necessary to keep the unemployment rate from rising over the long term. If anything, it reinforces the notion that the US economy has moderated.

Friday, 3 September 2004

More bad news for chip stocks

Chip giant Intel gave the industry another dose of bad news by cutting guidance for the third quarter.

Intel Cuts 3Q Forecast Amid Sales Slump
The high-tech comeback is beginning to look like a mirage. Computer chip giant Intel Corp. delivered the latest sign of a high-tech malaise late Thursday as management lowered the company's financial projections after concluding businesses and consumers aren't in a spending mood...

Santa Clara-based Intel said its third-quarter revenue will range from $8.3 billion to $8.6 billion. Management previously forecast revenue ranging from $8.6 billion to $9.2 billion for the three-month period ending Sept. 25. The mean revenue estimate among industry analysts had been $8.9 billion, according to Thomson First Call. Adhering to its usual practice, Intel didn't provide precise earnings guidance in its update, but management warned gross profit margins are sagging. The company expects the third-quarter margin to range from 56 percent to 60 percent, down from its previous estimate of 58 percent to 62 percent.

Chartered Semiconductor also made an announcement recently, but fortunately did not add to the gloom in the chip industry.

Chartered Semi reiterates 3rd-qtr outlook
Chartered Semiconductor Manufacturing Ltd., the world's third-largest supplier of custom-built microchips, on Thursday affirmed its third-quarter outlook originally issued in July. The Singapore-based firm said it sees third-quarter revenue of about $256 million and maintained its quarterly net profit outlook.

We are getting to the end of the quarter, so expect more companies coming forward with updated guidances. The question, of course, is whether they provide any surprises and what kind.

Singapore manufacturing bucks slowdown trend

Singapore's manufacturing shows no obvious signs of a slowdown.

Singapore's manufacturing sector expands for 15th straight month
Singapore's manufacturing sector entered its 15th consecutive month of expansion in August, with the Purchasing Managers' Index showing the sector's expansion last month was stronger. The Index rose to a reading of 55 in August from 53.5 previously... The August index reading also shows that the weaker expansion in July was just a blip.

The corresponding index for the key electronics industry shows that electronics firms are now into the 14th month of expansion. And the electronics industry expansion in August was also stronger than in July. Growth in the electronics sector was driven by increases in new orders from both domestic and overseas markets.

The global economic slowdown seems to be affecting Singapore less than most other countries (see also "July industrial output: Singapore up, Korea down"). However, the PMI readings do fluctuate from month to month, and I suspect that there will be a lag before the slowdown in the industrialised economies appear in Singapore as well.

Thursday, 2 September 2004

US manufacturing slows, housing mixed

There was further evidence of a manufacturing slowdown yesterday from the Institute for Supply Management. Construction spending, however, hit a record high in July, although loans data indicate a possible slowdown there as well.

U.S. Factory Growth Eases
Expansion in the U.S. factory sector slowed in August as higher costs for energy and raw materials squeezed manufacturers, a report showed on Wednesday, but analysts said growth remained relatively robust. The Institute for Supply Management said its index of national manufacturing activity fell to 59.0 in August, the lowest since October 2003, from 62.0 in July. However, the August figure was still not far below January's two-decade high of 63.6, as growth continued for a 15th consecutive month. Economists said the report did not offer any real cause for concern over the state of U.S. manufacturing...

While factories hummed along at a slower pace last month, the housing boom showed no sign of abating... A government report showed construction spending hit a record high in July, rising 0.4 low mortgage rates and a short supply of homes fueled residential building. All construction spending rose to a seasonally adjusted annual rate of $997.23 billion from an upwardly revised $992.90 billion pace in June. However, data released early in the day showed new applications for U.S. home loans dropped last week for the second week in a row even though 30-year mortgage rates fell slightly. The Mortgage Bankers Association said its seasonally adjusted market index, a measure of mortgage activity, fell 0.6 percent in the week ended Aug. 27 to 642.7 from the previous week's 646.3.

As I have said before, the slowdown in manufacturing should be expected and should not be a cause for concern. As for housing, a slowdown is probably not so much expected but needed. The recent loan data indicates that this may be happening.

The US economy is moderating and a gradual unwinding of the housing bubble is probably what is needed to sustain growth over the longer term.

Wednesday, 1 September 2004

US consumer confidence down in August

More bad news on the economic front.

US Consumer Confidence Tumbles in August
U.S. consumer confidence fell sharply in August, breaking four straight months of gains, as a slowdown in job creation and rising oil prices weighed on sentiment... The Conference Board, a private forecasting group, said its measure of consumer confidence fell to 98.2 from a revised 105.7 in July... The present situation index fell to 100.7 from 106.4, while the expectations index fell to 96.6 from 105.3.

I actually thought the numbers weren't too bad, considering the recent poor job numbers and the oil price increases earlier in the month. But it certainly puts further doubts on the sustainability of consumer spending growth.