Data from the November PMI Live Survey showed that the global economy is under pressure from falling production in major developed countries, with production declines now widespread in the US, the Eurozone, the UK and Japan. The current bout of economic weakness is the sharpest economic downturn since the global financial crisis, if we exclude months of quarantine due to the pandemic.
On the positive side of the slowdown, there has been a further easing of supply constraints and lower upward pressure on prices, especially in manufacturing, but with some reduction in pressure on input costs also evident in the services sector.
However, a further negative impact was on hiring. As companies increasingly absorb work in progress accumulated during the pandemic, business attention is shifting towards concerns about overcapacity in light of recent weak demand. Consequently, job growth in major developed countries slowed to its lowest level in almost two years.
In their initial reaction to the PMI break, financial markets saw less room for further tightening of monetary policy due to rising recession signals and declining inflationary pressures. Now the eyes are turning to major central banks to see how they view the current economic situation.
G4 Developed Economies PMI vs. GDP
Flash PMI data signals fifth monthly decline in developed world economies
The live PMI data added even more bleakness to the picture of the health of the global economy. Taken together, the survey data, covering the US, the eurozone, the UK and Japan, indicates that output in the major economies of the rich world fell in November for the fifth month in a row. The rate of decline has accelerated to its highest level since August. With the exception of initial lockdown restrictions, the latest PMI data points to the sharpest recession in the developed world since 2009 (although the current contraction is much smaller than during the global financial crisis).
Output declined faster on average in both the manufacturing and services sectors of the four major developed countries, indicating a broad economic malaise, although manufacturing reported a sharper pace of contraction.
G4 Developed Economies PMI Index by Sector
The downturn has also become more geographically widespread, with Japan now joining the US, the eurozone and the UK in reporting slower business activity in November. Manufacturing output fell in all G4 countries, while activity in the services sector also declined in the US, the Eurozone and the UK and stalled in Japan.
PMI output of developed countries G4
US flash PMI falls to 46.3
The sharpest decline in the G4 in November was recorded in the US. The main S&P Global Flash US PMI Composite Output Index stood at 46.3 in November compared to 48.2 at the start of the fourth quarter. The resulting rate of contraction was the sharpest since August and one of the fastest since 2009, adding to the survey data signs that the US is mired in a recession despite recent upbeat official data.
US GDP and PMI
The recent PMI is broadly in line with a quarter-on-year drop in US GDP of about 1% in the fourth quarter, although the rate of decline picked up in November.
Eurozone PMI rose to 47.8
The seasonally adjusted S&P Global Eurozone PMI rose from 47.3 in October to 47.8 in November, according to preliminary “instantaneous” readings. The Eurozone PMI is now registered below the neutral level of 50.0, indicating a five-consecutive slowdown in business activity, although recent data suggests a slowdown in the rate of contraction. However, fourth-quarter PMI data so far indicates that the eurozone economy is on track for its sharpest quarterly decline since the end of 2012, barring months of lockdown due to the pandemic.
So far, the data for the fourth quarter is consistent with a quarterly contraction in eurozone GDP of just over 0.2%.
Eurozone GDP and PMI
UK flash PMI rises from 48.2 to 48.3 inches
UK business activity declined for the fourth consecutive month in November, with a preliminary composite PMI of 48.3 to suggest that the pace of decline has slowed only marginally from October, which saw its sharpest drop in manufacturing since January 2021 with a PMI of 48.2 . As a result, barring months of lockdown due to the pandemic, the fourth-quarter PMI now signals the sharpest contraction in the UK economy since the height of the global financial crisis in the first quarter of 2009.
A comparison with GDP showed that the latest PMI data was broadly consistent with the economy contracting 0.4% quarterly. Thus, after a 0.2% decline in GDP in the third quarter, the continued decline in the last quarter of the year indicates that the UK is in a technical recession.
UK Flash PMI vs. GDP
Japanese PMI fell from 50.0 to 48.9
Japan joined the US and European downtrend in manufacturing, with PMI au Jibun Bank (compiled by S&P Global) falling from 51.8 in October to 48.9, the first decline since August and the worst since February. The sluggish service sector was accompanied by a sharp drop in manufacturing output, especially as a result of falling export sales.
Japan GDP vs. PMI
Price pressure eases as supply constraints ease
One benefit of the recent weakening of economic growth trends has been the concomitant easing in price pressures. This was especially evident in production. On average, the inflow of new manufacturing orders in the G4 countries fell for the sixth consecutive month in November at a rate not seen outside of pandemic periods since May 2009. This reduction in demand has been instrumental in taking pressure off supply chains. . In November, average G4 supplier delivery times increased by the least amount since January 2020, with delays dropping sharply compared to October. In November, for the first time since the start of the pandemic, supplier delivery times even improved in both the US and Germany.
Delivery time by supplier-manufacturer
This combination of falling demand and easing supply disruptions helped ease price pressures, with average prices paid by producers for inputs in the G4 countries rising at the slowest pace since January 2021. the worst relaxation.
Production costs, supply and demand
Production cost inflation
Services sector input cost inflation also eased broadly, with the exception of the UK, where energy and wage costs, as well as higher import costs associated with a weaker pound, were widely blamed for the slight pickup in growth. The sharpest slowdown in service sector costs was seen in the United States.
Inflation of production costs in the service sector
Weaker job growth
However, while weaker demand has helped ease inflationary pressures, a worsening backlog has also weighed on employment in recent months. The lack of new orders has meant that firms across the G4 have eaten up their portfolios of previously placed orders, which are now shrinking after booming during the pandemic. Companies, mindful of an unwelcome build-up of excess capacity, subsequently cut back on hiring, resulting in the smallest employment growth in the G4 in 21 months. Job growth has almost stalled in the US and Japan, with only very modest growth in the UK and the Eurozone.
Employment and Order Logs in G4
Weaker output and order book PMI data, and a concomitant decline in inflationary pressures, followed the largest monetary tightening in recent history in the G4 countries, with sharp increases in US and European interest rates pushing up interest rates. to the highest level since 2008
Advanced economies, output, prices and interest rates
Whether these weaker PMI numbers will convince central banks that they can now put less pressure on the brakes on the economy remains to be seen, especially as many official data series continue to show surprising resilience in the face of recent cost-of-living cuts and tightening. monetary policy. We suspect that, as in 2008-2009, the weakness of the survey has not yet fully manifested itself in the lagging official data, suggesting that there is a risk that policymakers could further tighten the recession, which could trigger a recession deeper than it could have been. needed to keep inflation down.
Editor’s note: The abstracts for this article have been selected by Seeking Alpha editors.