Rational Exuberance

China’s industrial production fell below economists forecasts in April according to an article posted on Forbes.com. But rather than place the blame on sluggish US exports or the Sichuan earthquake that may have killed as many as 50,000 people, analysts for Goldman Sachs say that there were simply too many Chinese holidays in April.

The country’s National Bureau of Statistics reported that industrial production grew by 15.7 percent from January to April, two percentage points below the 17.7 percent increase economists expected. Officials expected industrial production to rise based on the country’s 17.8 percent growth in March.

According to the article, two Goldman Sachs analysts, Yu Song and Hong Liang, said that the recent revision of state holidays in China gave workers more days off in April than in the month before. That same article said that China’s National Bureau of Statistics put industrial growth at 17.4 percent as long as “non-specified, one-off factors” were not taken into account.

Some economists who follow China believe that the triple threat of the American mortgage crisis, the credit crunch and the rising cost of commodities has finally begun to affect China’s growth. But Song and Liang said that they expect production to rise in May due to the inclusion of three more working days.

As the citizens of the United States wait for their economic stimulus checks to arrive via direct deposit and mail, commercial banks and now investment banks line up at the Federal Reserve’s discount window. As Bloomberg reported, “Funds provided through the so-called discount window for banks rose by $2.8 billion to a daily average of $14.4 billion in the week to May 14.”

Today in a speech to a Washington Post conference, Treasury Secretary Henry Paulson made the distinction that the U.S. has nearly turned the corner in exiting this period of malaise and some who dare say “recession.” Excerpt from speech: This fiscal stimulus will provide support to the economy as we weather the housing correction, capital markets turmoil and higher energy and food prices. Unemployment remains low and increased exports are partially offsetting other less positive factors. Overall, I believe we are on the right path to resolving market disruptions and building a stronger financial system. We are working through this period and our long term prospects remain strong.

A sign that happy days may not be here so soon is the increase of funds banks are receiving from the discount window. Last month the Fed opened the discount window to investment banks.

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Gordon Brown struggles to stay afloat in the jetsam of Great Britain’s politics as his early moves have been critiqued and pressure mounts by his own party to push him off the ballot in next year’s elections. For his part, Brown remains defiant and combative, claiming he is staying in the role.  A great deal of his problems have dealt with the economic situation, as the International Herald Tribune reported, “which has brought accelerating inflation, a weakening pound, banking sector turmoil and falling house prices in Britain.”

Brown’s involvement in these problems was substantial as he held the role of chancellor of the Exchequer before becoming prime minister.
His financial acumen was supposed to help diffuse the fact that he is not particularly telegenic or charismatic. Some have described Brown as “frustrating, annoying, bewildering and prickly,” and said that at times he could “go off like a bloody volcano.”

And so it is particularly troubling for the political future of Gordon Brown that the proposed tax on rubbish and the 10 p tax rate have met with so much resistance. His popularity has fallen dramatically in his first year of office. To make matters worse, union leaders today said that at least one million public sector employees could be on strike this summer.

The first time George W. Bush went with hat in hand to the Middle East to beg for higher production of oil to decrease the cost for U.S. consumers, it was slightly embarrassing. Especially since he was publicly rebuked by the Oil Minister who informed the president that they were quite content with the production level. Bush did not stop there. Yet again, W., who was in the region to visit Israel for their 60th anniversary, stopped by Saudi Arabia and King Abdullah’s residence to plead, beg and cajole for higher production. And again he was snubbed.

As the Asia Times reported in today’s article “An Oil Addicted Ex-Superpower,” “The fact is, America’s wealth and power has long rested on the abundance of cheap petroleum. The United States was, for a long time, the world’s leading producer of oil, supplying its own needs while generating a healthy surplus for export. ”

It’s unclear what Bush thought he was bringing to the table of the largest oil exporter in the world. It’s like a customer at an all-you-can-eat buffet asking the cook to make some foie gras. You get what you get, has been the unflinching response by Saudi Arabia. Maybe the Bush Administration should have changed the diet instead of assuming that the world’s oil providers would continue to heap on the portions.

Bush hasn’t been rebuked too many times during his tenure. Too bad the humility learned will be too little too late.

The Chinese press reported that while Monday’s earthquake has wounded thousands, the country’s factories are still intact.

CNN reported that Officials at the Ford Motor Co. factory in Chongqing closed the facility as a “safety precaution.” Workers at Ford Mazda Automobile Co. in Changan were evacuated during the quake but they returned to work 30 minutes later.

China’s president, Hu Jintao, called for an “all out” effort to rescue victims but, so far, multinationals such that do business in the country, such as Catapillar, are safe.

“I’m not aware of any damage to our facilities,” said
Kate Wang, spokeswoman for  Caterpillar (China) Investment Co.

Developing economies are not the only ones shrinking in the international market. This week, the French statistical office reported that industrial production fell for the first time in four months.

RTT News reported that the contraction was most evident in the French automotive sector in which output fell 2.9 percent in March. Automotive output had fallen by 2.1 percent in February.

But all is not gloom and doom in gay Paris. France’s industrial output grew by 1 percent in March. This growth, while six percentage points less than previously forecast, has prompted economists to raise the country’s annual growth forecast from 2 percent to 2.3 percent.

The Indian government persuaded Tata, JSW, Essar and other leading Indian steel manufacturers to cut prices at a time when global demand for metal outstrips supply.

Reuters India reported that  Steel prices have risen by 40 percent this year but the firms — which, together, produce 60 percent of the country’s steel — have agreed to cut the price of steel used in construction by 5 percent or $48 dollars per ton and that of  flattened rolls of steel by 10 percent or $97 per ton.

The same report indicated that the government expects reduced steel prices to lower domestic costs and reduce inflation, which has risen by 7.6 percent this year. But producers are clamoring for Prime Minister Manmohan Singh to stop iron ore exports and eliminate the tax currently levied on steel exports worldwide in return for their compliance.

The rising price of raw materials threatens to weaken China’s growing textile industry.

China Daily reported that, while the value of textile exports and garments grew by 19.47 percent to $38.5 billion this year, the cost of doing business in the country has forced many plants to close their doors. Some foreign-owned textile factories have even begun moving to other countries in the region.

The textile and garment industry make up 13 percent of China’s exports. Rampant factory closings threaten force more than 20 billion textile workers onto the streets. But that is a “worst case” scenario. The industry continues to hum along but factory owners have requested that the Chinese government adjust export tax rebates to offset a potential crisis.

China’s economy showed signs of slowing last month due an 8.1 percent increase in production costs, the largest such increase in three years.

The country’s national statistics office reported that the cost of fuels had gone up 10.3 percent in April. The cost of food jumped more than 11 percent and that metals, specifically steel, went up 27.3 percent.

At the same time, Italy’s Asia News reported that Chinese exports dropped by 8.8 percent in April and domestic imports, particularly of luxury goods such as automobiles, had fallen as well.

Some analysts place the blame on widespread stockpiling. Many companies expect the government to shut polluting mines and factories for the duration of the 2008 Olympic games. Others, more concerned about the potentially devastating effects of country’s 8 percent inflation rate, are waiting to see how rising production costs impact consumer prices.

As prices continue to rise for food and fuel shoppers, even those with a little more cash to burn, seek discount stores. The report from Marketplace also notes that customers are focused on value and price points.

Shopping tips:

Jack’s 99 Cent Discount ( 32nd and 6th) offers everything from stationary to pickles and olives. If you’ve got $10 bucks prepare to leave with two shopping bags.

If you find yourself popping into Duane Reade twice a week– go ahead and get one of those discount cards. They offer two for one on both name brands products and their brand often.  You can only get the discounts if you have the card.

I’ve been shopping at Jack’s for years. Does anyone think that demand will push the price of discount or 99 Cent stores up?