Purchasing manager surveys in a number of countries indicate that the manufacturing sector of the global economy has stalled. Recent readings in Europe, North America, and Asia are either slightly above or slightly below 50, the dividing point between expansion and contraction.
The U.S. ISM survey released on September 1st came in at 50.6, down 0.3 from July. While the number was still clinging to positive territory after 25 months, key components such as New Orders, Production, and Backlog of Orders were in contraction mode. Backlog of Orders was the lowest at 46.0. The highest component, as has been the case throughout the expansion, was Prices -- a measure of inflation. While this reached an astronomical 82.0 just six months ago in February, it was a relatively tame 55.5 in August. Not only is the manufacturing index not adjusted for inflation, but higher inflation makes it look better and this has been the case during the entire expansion.
While manufacturing was still just barely expanding in the U.S., it was slightly contracting in Europe. The August Purchasing Managers Index for the 17-nation eurozone came in at 49.0, down from 50.4 in July. Germany, the Netherlands and Austria had readings still above the neutral 50 level, while France, Greece, Ireland, Italy, and Spain were just below. The UK, not part of the eurozone, also had a PMI reading of 49.0 in August. This was down from 49.4 in July and was at a 26-month low.
China was either in expansion or in contraction depending on which survey you believe. The official survey produced by the Chinese government had a reading of 50.9, while an independent survey less subject to bias came in at 49.9. In both cases, the numbers are around the no growth level.
If only one region of the world had weakened manufacturing activity, it might not be meaningful. However, when it exists on three continents in major production centers, it is impossible to ignore. There has been an approximate two-year period of expansion fed by various stimulus measures, massive budget deficits, quantitative easing, and rock-bottom interest rates. While the low interest rates are still with us, the stimulus measures have waned and there are now minimal attempts to reign in deficit spending from its outsized levels. Even though there is still a lot of government support for the economy, this still doesn't seem to be enough for manufacturing to grow.
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.