The global economy – a high frequency view

Yesterday’s US jobs figures suggested weaker than expected economic growth in the US.  And yet other data suggest the US economy is doing better – at least compared to Europe and Japan.

In previous posts, I have argued that a very good high frequency measure of the state of economic activity is to look at the purchasing managers indexes (PMIs) compiled by various agencies.  These are surveys from company executives about how they see employment, orders and prices and production at their companies each month.  The indexes are just balances between those who think things have improved and those that don’t.  When the index goes above 50, it is supposed to suggest the economy or sector is expanding and when below 50, it is contracting.  Over the years, the PMIs have been pretty good indicators of what is happening.

The PMIs are usually compiled separately for the manufacturing and services sectors.  However, I think you get better idea if they are combined.  I have done this regularly for the US, using with the US Institute of Supply Managers (ISM) index – the US version of the PMI.  Below is the latest combined reading for March.

The combined index continues to confirm that the US economy is experiencing low growth but is showing little sign of either dropping back into recession, or as it did in the third year after the 2001 recession, moving into boom territory.  The US is stuck in a low growth path.

There is an even more high frequency indicator for the US economy provided by the ECRI agency, which combines various economic and financial measures to come up with its leading index on a weekly basis.  This is less reliable as an indicator, but at the moment it is confirming my ‘combined’ ISM measure.  The ECRI had been flirting with a recession level but now it looks firmly in the low growth area.

But what about the rest of the global economy?  This is more difficult to get a clear picture from these high frequency indicators.  But the selection below of the current position of different country PMIs does provide a guide of where we are in March.

The PMIs suggest that world capitalism is still expanding slowly and that includes Japan and the UK.  The jury is out on whether China is slowing fast or just slowly from near double-digit growth last year (the two China indicators tell a different story).  Europe is contracting overall, although if you look at each country within Europe (not done here), the overall decline is due to the slump in southern Europe.  Northern Europe continues to expand modestly.

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