The financial press enjoys hyping the various economic indicators but fails to place the results in context. Rather than viewing each piece of economic data as a component of the big picture, these outlets tend to view each indicator separately. Markit’s PMI data was released prior to today’s ISM numbers. Markit revealed a PMI of 52.5, and this was buried in the online editions of all of the outlets above.
When the ISM’s PMI registered at a 56, this news was placed on the homepage of Reuters, Bloomberg, the WSJ and CNBC. Which number is better? Neither. The truth is that these numbers confirm the present trend of tepid growth with an increasing chance of a recession going forward. Companies may be doing well with robust order flow and strong pricing power, but they are not willing to add more workers. As long as hiring remains slow, economic growth will remain tepid. As long as economic growth remains tepid, hiring will remain slow.
The Eurozone remains in a stagnant state. The Manufacturing PMI is barely within expansionary territory with a 51.1. This number represents a small decline from August. Commentators seem concerned that the Eurozone “expansion” is running out of gas only two months after it began. This information merely conforms to the actual situation on the ground rather than the recovery narrative. Growth is not accelerating, which is what used to happen prior to the New Normal, and this change is confusing to the mainstream media. The story is not the monthly fluctuations of the PMI but rather the overall trend. What is making this recovery weaker than previous iterations?
People place too much emphasis on the latest data release, but the real story is that Chinese manufacturing has been basically flat since mid-2011. The economy is still growing by 7.5% a year, and this growth must be coming from somewhere. Credit creation has been proceeding at a fairly rapid clip, and this is supporting the economy in the short term. The question in China is the same as for the rest of the large economies: How long will this loose money policy remain effective?
It seems as if Letta’s government will live to fight another day. PDL lawmakers rightly fear that voters will blame them for plunging the country into chaos. The problem is that even though this government will survive it is too weak to create and implement the necessary reforms to Italy’s political, economic and financial systems to spur growth. While there will not be an immediate crisis, eventually the consequences of past behavior will catch up to Italy, but it won’t be today. The country will continue muddling along until one day it doesn’t.