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Tuesday, April 22, 2014 11:59 PM

China Manufacturing Output and New Orders Contract Once Again

Chinese manufacturing remains in contraction for 2014. Output and new orders were down for the 4th consecutive month, but at a slightly reduced pace according to the HSBC Flash China Manufacturing PMI.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said:

The HSBC Flash China Manufacturing PMI stabilised at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted. The State Council released new measures to support growth and employment after the release of Q1 GDP. Whilst initial impact will likely be limited, they signalled readiness to do more if necessary. We think more measures may be unveiled in the coming months and the PBoC will keep sufficient liquidity.

There is a massive expectation that China will step on the gas at any time now to improve conditions. I rather doubt it, unless there is a far bigger, disorderly breakdown.

China needs to rebalance, and will. Slower and slower GDP growth will generally be the norm, most likely for years to come, perhaps interrupted by an occassional unsustainable spurt here or there.

Mike "Mish" Shedlock

5:49 PM

Amazing Surge in Middle-Aged Folks Moving in With Parents

Moving back home with parents is not just for millennials. A large number of those aged 50 to 64 are moving back home, for economic reasons, not for providing care to aged parents.

The LA Times reports Moving in with Parents Becomes More Common for the Middle-Aged

At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.

For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents' homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.

The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.

"The numbers are pretty amazing," Wallace said. "It's an age group that you normally think of as pretty financially stable. They're mid-career. They may be thinking ahead toward retirement. They've got a nest egg going. And then all of a sudden you see this huge push back into their parents' homes."

Many more young adults live with their parents than those in their 50s and early 60s live with theirs. Among 18- to 29-year-olds, 1.6 million Californians have taken up residence in their childhood bedrooms, according to the data.

Though that's a 33% jump from 2006, the pace is half that of the 50 to 64 age group.

The surge in middle-aged people moving in with parents reflects the grim economic reality that has taken hold in the aftermath of the Great Recession.

Long-term unemployment is especially acute for older people. The number of Americans 55 and older who have been out of work for a year or more was 617,000 at the end of December, a fivefold jump from the end of 2007 when the recession hit, according to the Bureau of Labor Statistics.

Those in their 50s move in only as a last resort. Many have exhausted savings. Some have jobs but can't shoulder soaring rents in areas such as Los Angeles or San Francisco.
The Fed thinks higher inflation is the answer. So does the ECB. One has to be lost in academic fantasyland to hold that view.

Mike "Mish" Shedlock

12:37 PM

ECB Threatens Negative Interest Rates; Bank of NY Mellon Threatens Charging for Euro Deposits

ECB president Mario Draghi has been making lots of noise recently about cutting interest rates because the euro is too strong and banks aren't lending enough.

Realistically, there's not much room to cut with rates already at a rock-bottom .25 percent.

Some suggest negative interest rates are just the ticket to spur lending. Should that happen, the Bank of New York Mellon Eyes Charging Clients for Euro Deposits.

Bank of New York Mellon said it was considering charging clients for depositing euros if the European Central Bank decides to cut key interest rates below zero.

The potential move by the world’s biggest custody bank comes after Mario Draghi, president of the ECB, said last week that the region could require “further monetary stimulus” to offset a strengthening euro.

“If the eurozone were to go to negative rates that would actually present the opportunity for us to charge for deposits and we are giving that very serious consideration,” Todd Gibbons, BNY Mellon’s chief financial officer, said on a conference call as the bank unveiled its first-quarter earnings.
Reflections on Forcing Banks to Lend

For starters, banks lend when they believe they have creditworthy customers and lending is worth the risk.

An attempt to make banks lend to non-creditworthy customers is not only foolish but reckless. How many times do we have to march down that path to prove it?

Banks Should be Banks

Moreover, and as I have commented before, banks should be banks. I see nothing at all wrong with banks charging a slight fee for deposits.

Banks ought not be lending demand deposit accounts in the first place. The practice is fraudulent. Thus, it is natural for banks to charge for safekeeping of such deposits.

If the ECB forces banks into a corner where they have to start charging for deposits, arguably the system will be better off for it.

However, I cannot endorse the blatant manipulation of interest rates that has led to the low rates we see now. Interest rate manipulation does harm holders of interest-bearing accounts such as CDs who receive paltry returns for their investments.

Mike "Mish" Shedlock

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