Asian Manufacturing PMIs suggest slowing economic growth

As we await the US ISM manufacturing index coming out today at 10:00EDT), I wanted to post a quick blurb on what the manufacturing sector is doing in Asia.

Andy Lees has the numbers. He writes:

The better than expected Chicago PMI helped lift the macro surprise index to -53.1, however lets not forget that whilst the data was better than expected it was still a slowdown from the previous month, indicating the economy continues to lose momentum if not yet stall. China’s official PMI rose to 50.9 from 50.7 and the HSBC Chinese PMI also improved to 49.9 from 49.3, however new orders were flat at 51.1 whilst export orders fell to 48.3, their lowest level since March 2009 – (China’s Premier warned that China’s export sector would suffer from higher wage costs as well as weaker export markets). Unfortunately the data was not uniformly positive as South Korea’s PMI fell to 49.7 from 51.3, and perhaps most worrying of all its CPI rose by 5.3% y/y, which other than 3 months in mid 2008 is the highest since the Asian financial crisis which led the head of the Korea Institute of Finance to warn that “It looks increasingly difficult for the country to meet its targets on both growth and inflation”. Taiwan’s PMI fell to just 45.2 suggesting the global electronics industry is not having a good time, whilst Japanese August car sales fell 25.5% y/y and in Britain the Nationwide reported house prices down 0.6% m/m and down 0.4% y/y.

My take: economic growth is moderating in Asia and that has caused central banks to become more dovish. Markets no longer expect the tightening cycle there to continue at the same pace. The 50 basis point cut in Brazil could be seen as a harbinger of more dovish emerging market interest rate policy everywhere – not that the CBs would go so far and cut as Brazil has done. The real question is China. They have been tightening. Will they continue to do so in the face of obvious weakening domestically and in Europe and North America?

In the US, expect a sub-50 reading on the ISM. That means that manufacturing will subtract from GDP growth. However, we would need to see 42 or lower for a number of months to confirm a recession. The US is at stall speed but is not in a recession. I almost always look to the (year-on-year) change in average jobless claims as a coincident indicator for recession. If jobless claims are 30-40K more than at this time last year, then we are close to recession. I see a +50K y-o-y jump as a recession lock. Last year claims were averaging 480K, now they are 410K. That doesn’t look like recession yet to me. Starting in the fall, I expect this comparison to become unfavourable.

  1. Richard Rosso says

    People think the markets and economy are joined at hip..

  2. David Lazarus says

    The Global economy will still grow even until the next financial crisis within a few years. The US and european banks are fundamentally very weak. Even so a global recession is very rare. Though I do think we will have one as the West enters a deep depression.

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