Chinese Exports Slumped 18.1% on a Year on Year Basis, Yet Not Reflecting Any Systematic Problem
China’s exports surprised everyone to the downside in February. You can now question the monetary policy/currency exchange strategy used by the People’s Bank of China (PBOC), or you can even question the oversea recoveries especially in its major trading partners such as U.S., Euro Zone or Japan. Exports fell 18.1% from a year earlier, after a 10.6% gain in January. But should we really care about this data? Maybe we should not.
The first few months of January’s data shows the result of the holidays, with orders brought forward ahead of the Lunar New Year. January and February’s data together reveal that exports fell 1.6% from a last year. Optimistic forecasts for China’s growth in 2014 are based on the expectations of a strong overseas recovery, and it does make sense. The early signs show that U.S. and European consumers might not be importing enough from the second largest economy. We also seem to have some distortion in the data, as artificially high exports base seems to be created for comparison in 2013. As Chinese Yuan fell over the course of February 2014, incentives to bring funds onshore were reduced.
The PBOC may lower the bank’s reserve requirement ratio in order to boost lending and revive economic growth. The economy may need some support in order to meet the government’s 7.5% expansion target because of Yuan’s record of 1.3% YTD fall, a declining Purchasing Managers’ Index (PMI) and an 18% plunge in exports last month. Lowering reserve requirement ratio is one of the few policy options that the central bank has left amid the liberalisation of interest rates.
Total nonfarm payroll employment rose by 175,000 in February. Job growth averaged at 189,000 per month over the prior 12 months. In February, job gains occurred in professional and business services and in wholesale trade, while information services lost some jobs. Employment in professional and business services increased by 79,000 in February while accounting and bookkeeping services added 16,000 jobs. Employment continued to trend up in temporary help services (+24,000) and in buildings and dwellings services (+11,000).
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Previous Market Brief of the Week: Market Brief of the Week for 3 March 2014: The Depreciation of the RMB Reflects the People Bank Of China’s (PBOC) Policy Stance