No, we’re not in danger of imminent global recession, but it looks like global manufacturing is slowing down — and manufacturing usually is the first thing to go when an economy turns south.
The first day of the month brings a deluge of often overlooked but critical readings on the health of economies from around the globe. Too bad that the latest batch of manufacturing surveys confirm what we already knew: The U.S. economy is the cleanest shirt in a big old pile of dirty laundry.
PMIs, or purchasing managers indexes, are surveys of thousands of private sector companies intended to get a bead on whether manufacturing is growing or contracting.
Even though it’s a service-economy world — at least in the U.S. — recessions usually start in the manufacturing sector, making changes there one of the best leading economic indicators we have.
Although the latest signs from Markit and the Institute for Supply Management are hardly flashing warnings of a recession ahead, they do confirm that the global economy remains stuck in a slow-growth — and very uneven — rut.
In the U.S., the ISM survey jumped to 54.2 from a prior reading of 53.1, and beat expectations for the index to slip to 52.4. (Index readings above 50 indicate expansion, while a number below 50 means manufacturing is contracting.)
However, the Markit survey showed a decline. Yes, the headline index still came in above 50, but the final tally of 54.3 was below the initial estimate of 55.2.
Nope — no recession here, but the numbers indicate that the economy remains a case of modest expansion, at best.
China, the world’s second largest national economy and the engine of global growth, is more problematic. On the plus side, the economy there continued to expand last month, with several separate surveys coming in (barley) above 50.
However, the data also came in below expectations — and it was noisy to boot.
Depressingly, China’s economic recovery might — just might — be running out of gas. Complicating matters is the fact that the survey data coincided with the Chinese New Year, which was certainly responsible for at least some of the slowdown.
Still, the latest numbers will only add to the anxiety over China’s tepid growth and weak recovery.
Also weighing on global growth are many of the most important economies of Europe. The U.K. saw a shocking contraction in manufacturing activity, with the Markit number posting a surprise drop to 47.9. Whether that nation can avoid a triple-dip recession is now very much in doubt.
More happily, Germany, the most important economy in Europe, bounced bank to expansion mode, hitting 50.3 from a prior reading of 49.8. Overall, however, the continent remains in poor shape. Italy, France and the broader eurozone all posted reading well below 50 last month.
Taken as a whole, the global economy appears to have cooled off last month — but it’s still stumbling along. China is still trying to pull off a soft landing. Europe is a dumpster fire. And the U.S., while weak, is at least headed in the right direction.
The bottom line is that next month’s surveys better not show a continuation of this trend. Then we really will have something to worry about.