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There's really not much change happening in Taiwan's labour market. But right now, that's what makes it interesting. Taiwan's unemployment rate is holding at lows not seen in 20 years. That in turn forms the backdrop for wage and core CPI rises which are the highest in 20 years.
Today's flash shows no change from recent themes: manufacturing is weak, services rather volatile, and inflation pressure everywhere is holding up, with manufacturing prices "comfortably above their long-run trend levels", and input costs in services "increasing at the fastest pace in 25 months".
The slowdown in auto exports that began in 2024 has continued through early 2025. EV sales and shipments to DM have been flat-lining for a while already, and rising exports of hybrids hasn't been big enough to make up the difference.
The standout feature of the Tankan Reuters remains the unusual strength of services relative to manufacturing. Today's march survey shows that this gap isn't expected to close in the next few months, and is one reason for the higher rate of inflation that Japan is experiencing.
The recovery in new property prices from Q4 faded in February, with prices dropping MoM. That makes some sense given mortgage lending, which has stopped slowing, but hasn't started to lift.
While excavator sales will be affected by inventories and replacement demand, the recovery in the last few months is another sign, along with the construction PMI and credit growth, that the overall cycle has bottomed.
The slow but steady pick-up in wage inflation is continuing. The trend is now up to 2.5%, the highest in 20 years. The lift is being led by manufacturing, where wage inflation is nearer 4%. These trends will keep a floor under both CPI inflation, and interest rates.
The reversal of December's fall in jobs continued in February, but the rise is still being driven by employment in the public sector, and of more elderly workers. In line with very poor business sentiment, private sector employment is continuing to weaken.
February's 4% YoY PPI sustains the break with import prices. In level terms, the break is more understandable: import prices usually rise more than PPI, then correct with global recession or JPY strength. As yet, they aren't happening, increasing pressure for PPI to rise.
Overall exports were a bit better in the first ten days of March, though still look to be below the peak of a few months ago. That semiconductor sales continue to slow isn't a positive sign for the outlook.
The surge in exports this year isn't all front-loading and Chinese New Year. Through 2024, Taiwan's export data had been looking light relative to TSMC's sales. That gap has now been closed, meaning strong performance for TSMC can once again be thought of as implying macro strength for Taiwan.
There is funniness in the data because of the holiday effect and likely tariff front-loading. But still, the surges in some of the flows are striking: server and semi sales, exports and the trade surplus with the US, capital goods imports. No sign at all of the sluggishness seen in the Korean data.
The BOJ's proxy for consumption dropped in January to the lowest since 2022. The population is declining, but the January data don't look much better, even in per capita terms. One reason is inflation, which continues to erode household incomes.
This is a good way of showing the contrasting cyclical momentum in China and Japan. Except for the sudden stops during covid, the services PMI in China is the lowest on record. In Japan, it is near the strongest.
Domestic demand in Korea has been weak for a number of months, with the economy supported by exports. But exports are now weakening too, as the semi cycle turns. No wonder the BOK is so worried about growth.
The rebound in price expectations in Taiwan's consumer confidence survey is starting to look interesting. It isn't just Chinese New Year, with the rise beginning in October last year. Certainly not grounds for the CBC to be cutting rates. Perhaps a reason to hike?
In YoY terms, the trend in services PPI inflation is still up, but sequentially it is starting to look like it has peaked at a bit above 2%. There might get another boost from a strong shunto, but 2% pipeline inflation looks light for getting sustainable CPI of the same rate.
Adjusted for holidays, and exports barely grew in the first 20 days of February. The big driver is the downturn in semi shipments. Equity performance suggests the relative underperformance of Korean exports relative to China and Taiwan will continue.
Data today show Taiwan's export orders dipped in January, but that was likely because of the Lunar New Year. Our broader leading indicator shows export growth remaining around 10% YoY in the next few months. More interesting in today's data is the continued fall in the overseas production ratio.
Consumer confidence rose again in February but remains well below the LT average; moreover, the improvement is only being among younger people. At the same time, CPI and property price expectations softened. There will be more news tomorrow with business sentiment.
Deflation eased in January, but only slightly. That's no surprise, given mortgage lending also remained weak last month. The sluggishness is persisting despite low rates, and the failure of rate cuts to revive the quintessentially rate sensitive sector remains a standout feature of this cycle.
Services sector sentiment in the Reuters Tankan remained elevated in today's February survey. Manufacturing is much weaker, and that remains something to be watching given the extra downside risk from tariffs. But in terms of Japan's cycle, Q1 is likely to be another decent quarter.
Today's Q424 data show a continuation of the pick-up in household lending from the trough of early 2023. But at 2.4% saar compared with 8% before 2020, the rebound is mild, and slower than GDP growth. For an economy where most indicators have been deteriorating, that's one bit of good news.
Like Japan, Taiwan had years of slowing wage and price inflation. And so, similarly with Japan, the turn in wage growth since the financial crisis is as much structural as cyclical. There's no sign of price inflation becoming problematic, but this wage picture suggests it isn't going back to zero.
Today's PBC data show another steep fall in mortgage interest rates in Q4. Rates are still 3%, so can go lower still. However, before 2020, real estate would be booming by now. That there's little reaction this time shows the problems in the real estate market won't be solved by rate cuts alone.