We now have most of the manufacturing PMIs for the world for July. (Services PMIs out next week).
There has been a worrying decline in July, almost all of it in the USA, echoed by July's labour force data. China has also been weak, which I talked about here.
Economic time series do not always move in straight lines. For example, in 2013, as the world was recovering from the Euro crisis, there was a 4-month period when the Big 8 manufacturing PMI fell. At the peak in 2010, the Big 8 PMI apparently peaked in 2010, before going on to achieve an even higher reading in 2011. So blips in an up or down trend do happen.
What causes recessions is major monetary and credit imbalances. Slowdowns are different. Economies don't grow in a straight line. There are small waves within the big ones.
So the key question is whether this is just a small wave in the USA, or the start of something much bigger.
The Fed's tightening has been extreme. Biden's IRA provided a massive fiscal stimulus, but that is fading (I'll explain how fiscal stimulus works one of these days). The fiscal stimulus, and the "revenge spending" in services, helped mask the negative effects of the Fed's tightening and the swingeing cuts in liquidity they imposed. So is the very recent weakening due to the delayed impact of the Fed's tightening of monetary policy? Because it can't be anything else: inflation is trending lower; there's no credit crisis; there's no collapse in consumer confidence. (I will update my US indicators shortly.)
I think the sudden tumble is just a blip. But I may be wrong; I have been before. Again, though, I reiterate: this global economic recovery will not be vigorous.
The Fed will start cutting rates in September. It may regret not doing it sooner.
No comments:
Post a Comment