US manufacturing stagnates

As usual, the line to watch is the thick green one, which should have less variability than either individual index. (Both indices are extreme-adjusted, but that mostly just reduces the down spike caused by covid in 2020.)

Right now, the manufacturing PMI index is rising while the manufacturing ISM index is falling.  This divergence in direction hasn't happened before. In 2017/18, a gap between the levels of these two indices did open up, but their direction was roughly the same.   But since late 2025, the PMI has been rising, while the ISM has been falling.

Which is "correct"?   We won't know for another few months.  What we do know is that the average of the two is flat, and only just above the 50% "recession line", in other words, stagnating.  If you feel compelled to go with the "better" index, that's prolly the ISM*, which goes back to 1947, when it was called the NAPM* index.  It has correlated well with every major and most minor business cycles since then.  And it looks as if it's falling.

*NAPM = National Association of Purchasing Managers.  ISM = Institute of Supply Management.  I suppose they thought that sounded a bit grander.

Oz's headline inflation picks up

 Australia's inflation rate has picked up, but that (mostly) is not a sign that inflation really is increasing, but is rather a result of state initiatives to reduce electricity bills with subsidies.  When subsidies were introduced, headline inflation fell, and now they've expired, it's risen.  

However, it's above the top of the RBA's inflation band (2 - 3 per cent), so the chatter is that the next rate change will be up instead of down.  I'm not so convinced.  Even the RBA* can't ignore the obvious signs that the economy is slowing.  And it's quite likely that the Federal government will introduce a new subsidy for electricity bills in the next budget in March.  

The cost of electricity is a hot topic, with the Right blaming renewables, and everybody else pointing out that prices are set by the highest-cost supplier, which is gas.  So the sort-of-left-ish government, the Australian Labor Party (ALP) wants to defuse the agitation from the "Liberal" (= right-wing) opposition about the shift to renewables, and will prolly introduce a subsidy to cut the pain of high electricity prices while they wait for their painfully slow roll-out of renewables to take effect.

Coming back to the economy, my next post will be about how the Ozzie economy appears to have started to slow again, so it would be perverse of the RBA to raise rates.  But then, they haven't exactly covered themselves with glory over the last few years, so who knows.

The ABS (Australian Bureau of Statistics) has now switched completely
 from quarterly CPI indices to monthly.  The monthly indices are now the official CPI.

*RBA = Reserve Bank of Australia

A very clear slowdown in China

A very clear slowdown.  (See China's manufacturing PMI heads south) 

Europe is (more or less) still recovering, though I would not describe it as a runaway boom. 

But the US is sliding.   Plus, China's slowdown is forcing the country to export deflation as her industry tries to survive the domestic crunch.

Quelle pagaille !  Trump's tariff tango is endangering the world economy.   The world's two largest economies are at best stagnating.  And the trends don't look good. 

[Technical note:  Most Chinese economic time series are affected by the peripatetic Chinese New Year, which can be in January or February.  The NBS (National Bureau of Statistics)  often does not publish data for January and February, or publishes an average for the two months.

Seasonally adjusting these time series is difficult.  This is complicated further by China's publishing industrial production as a year-on-year change, not as an index.  Estimating an index was made more tricky by successive Covid lockdowns.  I have found that my seasonal adjustment program was not completely removing seasonality because of these problems.  

So I have adjusted somewhat the method of calculation for Chinese IP, by seasonally adjusting my estimated IP index before and after covid separately.  In addition, I have fitted a centred 12-month moving average to the resulting time series.  By definition, a 12-month moving average contains no seasonality.  The rate of change I show is calculated from the average of my seasonally adjusted index and its 12-month centred moving average.  I hope this still leaves enough variation to detect change in business cycle trends, without being misled by spurious seasonality.] 

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China's manufacturing PMI heads south

Showing just how pernicious the effect of Trump's tariff tango is, China's manufacturing is suffering at pretty much the same time as the US's is also sliding.  A triumph.

The chart shows the average of S&P Global's and the official NBS manufacturing PMIs, extreme-adjusted, and smoothed using a 3-month centred moving average.

During and just after Covid, it became important to watch services.  In a normal business cycle, it's manufacturing and construction which drive the cycle, because of the inventory (stock) problem.  Services, on the other hand, tend to fluctuate much less over the cycle, so the aberration of big swings during and after Covid is probably over, and manufacturing is once again important.  (Though, to be fair, in the US, confidence is so damaged that services may still be affected.)

It remains to be seen whether manufacturing drags down services and with it GDP, globally, but that has to be a big risk.