Europe drives world econ higher

 We now have all the PMI and ISM data for October.   

The GDP-weighted averages for the Big 8 manufacturing and services PMIs are shown below.  The Big 8 are:  the USA, the UK, the Euro zone, Japan, China, Brazil, Russia, India.  Together, they make up roughly 70% of world GDP.  

Services rebounded sharply in October, pushing up the average of the services and manufacturing PMIs (the green line in the chart)   Most of that rebound was in Europe (from 51.3 to 53.0) and in the UK (from 50.8 to 52.3).  Russia also rebounded, from 47 to 51.7.

While the recovery in manufacturing has been sluggish, services have been surprisingly strong.

Historically, the main drivers of the business cycle have been manufacturing and construction, with services following, because of the inventory (stocks) cycle.   So far, the recovery in manufacturing has been weak, but services have held up, which is interesting.   This suggests that Trump's trade war is affecting manufacturing, but since tariffs haven't been set on traded services, it is not affecting services.  The problem is: how long can this disconnect continue?  If manufacturing goes back into recession, services will surely in the end follow.

Business confidence in the Big 8 is picking up too, also driven mostly by surging business confidence in Europe.

My view of the world recovery and the negative effects of the Trump tariffs has so far been too pessimistic.  Perhaps, like Brexit, it will take a couple of years for the negative effects outside the USA to become apparent---they are much clearer within the US.  Yes, manufacturing is soggy, as the trade war has (some) effect.  But services are responding in the normal way to the fall in global interest rates over the last year.

So far, though the recovery has not been steep, it is clear that the world economy is picking up.  How sustainable that is, isn't clear.

[As usual, the data come from a variety of sources, including S&P Global, the ISM, and the OECD, among others.  They are my calculations for extreme-adjustment and the GDP-weighted indices]