Gloomy Manufacturing around the World
Market Commentary
By WSS Research Team

By Carlos Guillen

As the macroeconomic data points accumulate, it is clear that world economic growth will slow this year with little indications of improvements next year. Today, manufacturing data from main economies added more proof that the economic backdrop is getting gloomy.

During the trading session today, the Institute for Supply Management (ISM) released its Purchasing Managers' index (PMI), considered by many to be a very important health indicator of the manufacturing industry here at home. PMI in July clocked in at 49.8 percent, landing below the 50.1 percent consensus estimate, but slightly increasing from the 49.7 percent reported in June. Given that a reading above 50 percent indicates the manufacturing economy is generally expanding, July's reading represents the second month of contraction in the manufacturing sector since July 2009. The news was clearly disappointing, but there is still some life left in the economy as a PMI over 42.6 percent, over a period of time, generally indicates overall economic expansion, and the result indicated the 38th consecutive month of overall economy growth. The big question, however, is just how much economic growth do we have left for the rest of this year. The consumer is putting the brakes on spending as the employment backdrop is still unfavorable, with an unemployment rate in the 8 percent range. Moreover, the debt situation in Europe and the slowing growth in China are threatening to damp economic growth here at home. And let's not forget that early next year there is the threat of higher taxes and automatic government spending cuts, which will surely throw a wrench into the gears of economic growth.

The manufacturing contraction is not just here in the U.S., in the euro zone manufacturing took another hefty blow in July, and factories are preparing for worse to come. According to Markit's euro zone PMI, the index declined from 45.1 in June to 44.0 in July, below the preliminary reading of 41.1 and holding at its lowest reading since June 2009. The manufacturing activity in the 17-nation zone has now contracted for the eleventh consecutive month as its debt crisis continues and world demand slows.

In China, PMI also slipped to an eight-month low as overseas orders dropped. The official government PMI reading landed at 50.1 in July, lower than economists' forecast of 50.5 and lower than the 50.2 posted in June. On the other hand, the HSBC China PMI reading rose to 49.3, its highest level since February, but it was the ninth straight month below 50, showing contraction. It is clear that the globe's economy is slowing. Confidence is falling everywhere, and corporations are holding back on new orders in all developed nations. Consequently, exports are shrinking fast, and GDP estimates continue to decline.

In all, the manufacturing data posted today from around the world is painting a much clearer picture, which is one of rapidly slowing growth in the short run. Even from the most bullish points of view, one has to admit the economic situation around the world is not as good as it looked a few of months ago.

World Manufacturing Slump
By David Urani

Aside from the ISM we got Markit's global manufacturing figures for July and boy, does it continue to look ugly. Europe remains a disaster, with the stronger economies like the UK, France and Germany seeing declines further into the red zone. There were slight gains in Spain and Greece, but let's be honest those are so deep in the red already that the "improvement" just means that they are falling a little lest quickly than last month; they continue to underperform on the overall scale.

For good measure Markit, like the ISM, also shows a decline in the US, to a reading of 51.4 from 52.5. Note that this result assumes the USA is in a slight position of growth (above 50) whereas the ISM puts us slightly negative. And a similar picture shows up in China, where Markit's reading puts it at 49.3 (up from 48.2) whereas China's official index clocked in at 50.1 (down from 50.2). So China and the US both seem to be straddling the growth/contraction threshold, and the longer Europe stays like this the more you have to wonder how long they can hold on.

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