The latest ISM Manufacturing Index came out earlier today. The numbers were strong, and the 69.1% reading was above expectations.
Economic activity in the manufacturing sector expanded in December 2017, marking the 103rd consecutive month of economic expansion in the US. The numbers point to a continued brisk pace of expansion, likely inviting multiple Fed policy responses in early 2018.
The ISM manufacturing index showed the US manufacturing sector expanding at a faster rate, with the index hitting 57.7% in February. Importantly, the three major subindices – new orders, production and employment – all showed robust expansion.
In February, the rate of growth of Italy’s manufacturing sector showed the fastest increase in output and new orders since December 2015. Employment growth was the highest since late 2000.
While the US economy has decelerated enough since mid-2015 to put me on recession watch, it has not reached the point of recession. Moreover, the data do not indicate a recession is in the offing in the near-term. Rather, a combination of policy error and exogenous shock make a recession […]
The recent data coming out of the US has been almost unrelentingly negative outside of the recent jobs reports. The Atlanta Fed GDP now report was already down to 0.7% for Q4 when poor output and retail sales data came out. I expect the GDPNow forecast to fall even lower. And given the signal that the change in non-farm payrolls is sending and the difficult comps for weekly jobless claims, I believe we are now at stall speed in the US economy, putting me on recession watch. I have a number of data points to review here. So let’s get to it straight away.
Ever since Willem Buiter’s call for a global recession within the next two years, people have been parsing the data for some indication that the US has been fatally compromised by contagion from emerging markets. Nothing in Buiter’s piece talked of outright recession in the US. Rather, he talked of global growth slowing to a 2% annual rate. Therefore, the US’s not entering recession would be fully consistent with his global recession call. At this point, it isn’t clear where the US will be two years from now. The most we can say is there are signs of slowing inconsistent with a rate hike. I will explain in chart form below.
The meltdown in Brazil is not exactly unexpected since one of my ten surprises for 2014 was that Brazil goes into recession. But I find the pace of the currency reaction alarming and we should be prepared for a crisis as a result. In the developed economy, despite sluggish growth, I am generally positive on the near-term. France and Italy are the laggards to be concerned with.
Continuing where I left off last week, I am going to emphasize here that the Federal Reserve is likely to raise US interest rates unless the US economy slows materially. Meanwhile, the economic and market fundamentals are moving in the opposite direction. I believe this indicates reactive Fed behaviour rather than anticipatory action on rates. Meanwhile, global growth signs are mixed. I will provide some anecdotes below.
Despite the title, this is not a mono-themed post but more of a highlight of recent news and data and their importance in interpreting the direction of the economy and potential effect on markets. I do want to concentrate on European and US data but I also have some data […]
This week’s economic and market themes piece is going to be a little shorter than usual because I have covered a lot of the major topics earlier in the week. United States. Let’s start with the US. The jobs data today showed 208,000 jobs added in the month of July, […]
This is a long-form post on Ukraine. The big news, however, is from the European Union where the PMIs and a slew of other economic data came out today. The data showed the European economy improving broadly from its weakened recovery status. This will give the ECB room to take a wait and see approach. At the same time, the EU foreign ministers met yesterday and, according to reports are ready to impose heavier sanctions on Russia in the wake of the downing of Malaysia Airlines Flight 17 over Ukraine. There’s a lot data to digest here so let me start off with the EU – Ukraine – Russia narrative.