May 25th, 2011
Econintersect: Over recent weeks evidence of economic slowdown has been accumulating. The latest data is focused on manufacturing, which had been a strong area of the global economy earlier in the year. Reports from around the world are summarized below but the latest bombshell came from the Richmond Fed, which issued a stunning report yesterday (May 24): Manufacturing activity, shipments and new orders fell to levels not seen since the middle of The Great Recession. Follow up:
Follow up:This is a single month set of data points, but even the 3-month moving average for new orders dropped below anything seen since the summer 0f 2009. The following three graphs are from the Richmond Fed report:
From Advisor One:
Chinese markets have plunged in response to a purchasing managers’ index (PMI) that fell to 51.1 in May from 51.8 in April, a nearly 3 percent drop. Anything above 50 still indicates expansion, but such a weak reading risks shutting down the largest engine of growth in the world economy. The May PMI reading marks a 10-month low. Chinese stocks have now fallen four straight days, with the Shanghai Composite losing 9.5% of its value, just half a percentage away from a technical correction.
The dismal news continued in Europe with a PMI report indicating a slowing of manufacturing activity on a continent already beset by sovereign debt worries. The eurozone composite index fell from 57.8 to 55.4, the sharpest drop since November 2008 after the Lehman Brothers debacle. The drop in manufacturing activity is especially concerning because of decelerating economic activity in Germany and France; problems in Europe’s economic core might exacerbate already difficult debt issues in Europe’s periphery.
Magnifying the concern, on Tuesday the regional branch of the Fed in Richmond reported a sharp decline in manufacturing activity in May, following similar declines reported in the New York and Philadelphia regions. From readings of 20 in March and 10 in April the index has plunged to a level of negative-6. The Fed blamed a fall in shipments and new orders for the weak manufacturing activity. Economy watchers will be paying close attention to Wednesday’s report on durable goods orders for further evidence of a possible slowdown in U.S. manufacturing. J.P. Morgan analysts have already downgraded their U.S. GDP forecast to an annual rate of 2.5% from a previous estimate of 3 percent.
Several reports at GEI Analysis have highlighted recent slowdown in economic data, including reports from the various regional Fed banks, industrial production, durable goods sales and GEI's current economic indicator. The analysis reports conclude that the data indicates only a slowdown at this point and not a return to recession.