The world economy expands – but at a slow pace

2013 ended with all the key sectors of the world economy expanding, at least according to the monthly purchasing managers indexes (PMIs) for December.  The PMIs have been regarded as the most ‘high-frequercy’ i.e most immediate measures of economic activity in various countries.  But remember, the PMIs are only surveys of how well corporate managers think they are doing.   They are not hard data on the expansion or contraction of industrial output or in so-called service sectors.  

Looking at the combined PMIs for manufacturing and services in December, it looks like this.

PMI Dec 13

Everywhere is expanding, even the Eurozone as a whole.  But the pace of expansion slowed overall for the world PMI, and in the US, the UK, Japan and most of the major emerging economies.  Still expansion it is, if only at a moderate pace.  Within the Eurozone, Spain was a little better, at least in its services sector, but France and Italy remain depressed.  Germany, of course, continues to be the growth leader in the region, but at a slightly slower pace.  The Eurozone PMI implies a growth rate of about 0.2% – that’s all.

The hugely acclaimed UK ‘recovery’ (see my post, was not quite so fast in December.  And there remains a big gap between the PMI for UK services (the most important part of the UK economy) and the reality of services sector growth.  We’ll see whether the hard data will rise to meet the high PMI or vice versa.  If the PMI is right, then the UK ended the year growing at nearly a 2% real GDP rate.
What about the world’s leading capitalist economy, the US?  Well, the PMIs suggest expansion but at a slightly slower pace in December.  My own combined ISM measure shows that the US is still in low-growth mode.
US Combined Dec 13

The even more frequent indicator of activity (but less reliable for that), the ECRI measure, also shows that the US remains in low growth mode but with some signs of a slight picking up in pace.

ECRI Dec 13

The usual hype about massive Xmas sales by retailers both in the US and in the UK turned out to be just that – hype.  The shops experienced relatively dismal sales despite internet buying and massive discounts on items. According to ShopperTrak, US retailers posted their lowest holiday sales growth in four years. Sales between Thanksgiving and Christmas rose 2.7%, compared with 3% a year earlier, while the number of people walking into stores declined 14.6%. It was a similar story in the UK. Households continue to suffer falls in real income and so they are not increasing spending much beyond essentials.  The misery continues for most.

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