It was bad news for the US, China and Germany yesterday.
Yesterday was the day of flash composite PMIs. That is to say it is when we see the release of early estimates of Purchasing Managers’ Indices covering manufacturing and services. And to remind you, the magic score is 50: over is meant to correspond with expansion, under with contraction.
First off the blocks was the flash composite PMI for China produced by HSBC and Markit. The index fell from 51.6 in March to 50.5. Over the last six months or so, the index has been fluctuating within a narrow range. Yesterday’s reading was at the lower end of that range. On its own, this does not spell disaster, but combine the falls in this index with other evidence – for example continuing rises in house prices, local government debt, and ongoing failure to adjust from investment led to consumer led growth – and you can see why China has a few problems.
Here is a riddle for you. At the beginning of last year, the markets rose in relief as it became clear China was going to avoid a hard landing – at least that is what they said. As the year developed it become clear that it was far from certain this hard landing was going to be avoided. Then at the beginning of this year the markets rose in relief as it became clear China was going to avoid a hard landing – yes, that’s right, they said it again. Once again it has become far from clear that this hard landing will be avoided.
Second off the blocks was Germany. The flash composite PMI from Markit fell to 48.8 from 50.6, a six month low. It appears Germany is either in, or very close to, recession. Germany, like China, is reliant on exporting. As its major export markets slow,
Germany struggles. That’s Germany’s weakness. It relies on other countries growing for it to grow. But think about that. If Germany has a trade surplus, the rest of the world must have a trade deficit with Germany. It may see its economic strategy of growing via exports as being sustainable, but it’s possible that it is only sustainable if other countries pursue unsustainable growth via debt funded consumer spending.
And finally, there was the latest flash PMI from Markit out of the US. But this time the index just related to manufacturing. The index fell from 54.6 to 52 – its lowest reading in six months. The sub index covering new orders fell especially sharply from 55.4 to 51.8, but even so the US data is not quite as concerning as the data out of Germany and China. It is still consistent with the US economy growing at a pace most Europeans can only dream of. But bear in mind the most recent jobs report out of the US was disappointing, and one can’t help but conclude that it’s been a bad April all round.
© Investment & Business News 2013