Submitted by Jeffrey Snider via Alhambra Investment Partners, [14]
Yesterday was, apparently, the perfect storm of downbeat PMI’s. As usual, sentiment surveys have limited value except in cases of outliers or in unanimity. There was some of both across the world’s manufacturing updates.
First, which was certainly most watched, China’s PMI fell to a three-year low below 50, further suggesting that there isn’t yet a bottom for how much “this” will eventually subtract [15].
The official Purchasing Managers’ Index fell to 49.7 in August from the previous month’s reading of 50, the first time since February that the bellwether figure for large industrial enterprises has fallen below 50 — the level that separates expansion from contraction — and its lowest since August 2012.
With industrial production slowing again in July this wasn’t much of surprise even to economists who get their hopes up after every monthly turn higher. China’s economy is still struggling and the full weight of financial fireworks is still to show up in all that.
Despite the “dollar’s” entanglements there, it is still convention that China’s problems are its own and that the US has, or will someday, decouple since Janet Yellen and the Fed has been so “highly accommodative” for so long. The “unexpected” slump of earlier in the year has been ignored again as the “dollar” pause after March took off just enough pressure for mainstream extrapolations to once more take hold as if it were all again another “aberration.” This second “dollar” wave suggests the opposite, which is why deceleration showing up in US activity is taken more seriously this time around; to the point now of “global growth concerns [16].”
The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.1 from 52.7 the month before, marking the lowest reading since May 2013…The new orders subindex fell to 51.7 from 56.5 to also mark the lowest level since May 2013. The prices paid index fell to 39.0 from 44.0 to mark the weakest level since March, disappointing expectations for 42.5. The employment index slipped to 51.2 from 52.7 to mark its lowest level since April, while the imports index hit its lowest level since January 2013 at 51.5.
In sync, for once, the Markit version of US manufacturing sentiment was also at a 2013 low in August [17]:
U.S. manufacturers indicated a renewed loss of momentum during August, with output, new business and payroll numbers all increasing at a slower rate than in the previous month. As a result, the headline seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™ ) dipped from 53.8 in July to 52.9 in August. The index remained above the neutral 50.0 threshold, but the latest reading was the lowest since October 2013.
Even the Markit Services PMI is showing ill-effects now [18]:
August data nonetheless pointed to a marked slowdown in new business growth from the three-month high recorded in July. The latest increase in new work received by service providers was the slowest since January and softer than the average since the series began in late-2009. Some survey respondents commented on more subdued business sentiment and cautious spending patterns among clients.
Over to Europe and 6-months of QE that can barely be detected [19] except in, what else, asset prices…
Euro zone manufacturing growth eased last month, despite factories barely raising prices, adding to the European Central Bank’s woes as it battles to spur expansion and inflation, a survey showed.
Tuesday’s disappointing readings come almost half a year after the ECB began pumping 60 billion euros a month of fresh cash into the economy and a day after official data showed inflation in the 19-country bloc at just 0.2 percent.
…with particularly immutable QE-resistance from France [20]:
France’s beleaguered factories deteriorated again in August, with output tumbling to a four-month low, confirming the country’s position as the eurozone’s manufacturing laggard.
An influential survey of French industry (PMI) came in below analyst expectations at 48.3 last month from 49.6 in July. Any number below 50 indicates contraction.
That left JP Morgan’s Global Manufacturing PMI at the slowest pace also in years [21]:
Growth in the global manufacturing sector remained lacklustre during August. The rate of expansion in production volumes eased to the weakest seen in 28 months and the pace of increase in new business stayed close to recent lows. At 50.7 in August, the J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and Markit in association with ISM and IFPSM – fell to its lowest level since July 2013.
To the north in Canada, economists there are just as utterly confused, calling the appearance of a technical recession “strange” but only because the retraction of artificial oil support has yet to blow through the full housing bubble [22]:
Second-quarter figures beat consensus estimates among economists for a 1-per-cent cent drop in GDP. Excluding the oil, gas and mining sector, the economy actually grew in the second quarter thanks to a boost from higher consumer spending on the strength of the housing market as well as a jump in exports, led by the automotive and energy sectors.
Activity among realtors and real estate brokers rose nearly 10 per cent on the strength of the resale housing market, offsetting a 4-per-cent drop in new home construction…
“If this period is ultimately deemed to be a recession, it will be of the mildest variety and one of the strangest recessions ever,” wrote Bank of Montreal chief economist Douglas Porter in a research note. “Consumer spending was up in both quarters and so too was employment, far from a widespread softening in the economy.”
The recession might only be deemed odd if you extrapolate now its already-given end. Again, any upturn or pause in the contraction would be short-lived as a result of the lag between the “dollar’s” first downturn and the second; especially any effects on oil and gas that a few months ago might have appeared somewhat more optimistic only to have been crashed in August yet again. This technical debate in Canada, in other words, isn’t likely over as the contraction over the first half of the year, as the US, China, Europe, Brazil, etc., etc., has not yet run its course – not by a long shot. After all, there wasn’t supposed to be any weakness anywhere this year, let alone globally synchronized gaining distress with enormous financial irregularities added on for good “unexpected” measure.
Given “highly accommodative [23]” policy almost everywhere, and so little gained; it isn’t a good sign particularly after eight incessant years of it and the lagged effects from the renewed “dollar” wave still to be withstood. Every year was supposed to be “the year”, but 2015 was a surefire lock according to orthodox versions. The real difference, unlike past years, is that everything is going wrong so far just as predicted by the “strong dollar.”
