Except for U.S., global picture rosy for manufacturing
WASHINGTON — Just a few months ago, the global economy seemed to be stuck in a precarious state. Huge swaths of the world economy were either slowing down or contracting outright, and it wasn't at all clear whether global economic policymakers would have enough gas left in their stimulus tanks to stop things from spiraling into a bad place.
But a wave of reports on the manufacturing sector in nations around the world overnight and Monday morning are just the latest data that point to the world having avoided that fate. The same cannot be said of the United States, however.
China's manufacturing sector expanded in November, with an official manufacturing index rising to 50.6 from 50.2 and an unofficial index from HSBC rising to 50.5, from 49.5. (In those numbers, like all of those cited here, numbers above 50 indicate expansion and the indexes are based on surveys of purchasing managers at manufacturing firms). Other emerging Asian economies also reported increases, including South Korea, India, and Vietnam.
In Europe, the news was also positive, although positive is a relative concept on a continent where many nations are in recession and a few are in depression. For the 17-nation eurozone as a whole, the manufacturing index rose to 46.8 from 45.7, signaling that the contraction continued but is becoming less severe. Manufacturing indexes from Markit Economics rose in the continent's industrial powerhouses of Germany and France, and perhaps most promisingly Spain, land of more than 25 percent unemployment, the index jumped to 45.3, from 43.5.
Italy was the only disappointment among the large European economies, edging down. Other countries with negative results in their manufacturing indexes include Japan, Indonesia and Russia.
But put it all together, and the portrait painted by the manufacturing reports is of a world economy that isn't going off the rails. China's slowdown over the summer was not, so far at least, the start of any broader economic collapse. Europe's recession is bad, but major European economies aren't in free-fall. Mario Draghi, president of the European Central Bank, said in an interview with Europe 1 radio on Friday that a Eurozone recovery “would start probably in the second half of 2013,” and the new numbers on Monday seem to fit that forecast; contraction remains under way, but the pace of that contraction is slowing.
This is all good news. One of the major weights that has hung on U.S. companies over the last few months has been a slowing global economy; American exporters have dealt with less actual demand from overseas and with fear that the slump could become an all-out global recession.
The first of those factors remains. While the latest wave of manufacturing numbers represent improvement, they still signal an economic contraction in Europe and weaker growth in emerging Asian economies than everyone had become accustomed to during the last few years.
But it is that second risk that is increasingly off the table. This is a run-of-the-mill recession in Europe, not an all-out economic collapse. The weakness in China and other emerging Asian economies is more a soft patch than an end to two decades of rip-roaring growth.
All of which brings us to the United States. The Institute for Supply Management's purchasing managers' index fell sharply, to 49.5, from 51.7 in October. The details of the number were simply terrible. The level of production activity at American factories rose, but new orders fell 3.9 percent, which bodes ill for the future. The employment component of the survey fell to its lowest level since September 2009, which is hardly an optimistic sign for the November jobs numbers due out on Friday.
For the last several months, U.S. firms have blamed economic weakness abroad for their own hard times. But the combination of improving manufacturing numbers around the world and weakness in America suggests that this is no longer a global story. We have to look inward-particularly to the uncertainty around the resolution of the fiscal cliff to explain what is happening in the U.S. economy.
“The fiscal cliff is the big worry right now,” said an unnamed executive of a fabricated metal products company quoted by the ISM in its release. “We will not look toward any type of expansion until this is addressed; if the program that is put in place is more taxes and big spending cuts — which will push us toward recession — forget it.”