Wednesday, November 2, 2011

Purchasing Managers Indexes

The global economy was able to grow and prosper during the previous two decades even though they were described as “lost decades” for Japan, the world’s second largest economy back then. The question is whether the global economy can do the same if Europe’s economy is now facing a lost decade? I think so, but right now Europe’s economy may be already in a recession that will certainly depress global economic growth. For now, most of the pain in the global economy is showing up in Europe’s economic indicators:

(1) OECD predicts a growth recession for Europe next year. On Monday, the OECD slashed its 2012 growth forecast for the euro zone to 0.3% from 2.0% in May.

(2) Unemployment rising in Europe. During September, 23.3 million people were unemployed in the 27 countries of the European Union. That includes 16.2 million unemployed in the euro zone. Compared with August 2011, the number of persons unemployed increased by 174,000 in the EU27 and by 188,000 in the euro area. As a result, the jobless rate in the euro zone rose slightly to 10.2% in September from a revised 10.1% in August.

(3) European manufacturing purchasing managers are depressed. Manufacturing purchasing managers indexes (M-PMI) were weak in all of the major European countries during October. The UK index dropped to 47.4 from 50.8. The EU index fell to 47.1, the lowest since July 2009. Germany decreased to 49.1, the first reading below 50 since September 2009. France edged up from 48.2 to 48.5, but remained under 50. Italy plunged to 43.3.

(4) US manufacturing growing, but at a slower pace. The M-PMI in the US edged down during October, but remained above 50. It was 50.8 during the month. The weakest component was the inventories index, which dropped to 46.7 from 52.0. Still on the upside were production (50.1), orders (52.4), and employment (53.5).

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