Global Manufacturing Recession Started: Trump's China Tariffs Made Matters Worse


A global manufacturing recession is now a certainty. Trump just made matters worse with a new 10% tariff hike on China.

The Markit Global Manufacturing PMI is in the third month of contraction.

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  • The downturn in the global manufacturing sector extended into its third consecutive month in July. Production and new order intakes declined further, as conditions in many domestic markets remained soft and international trade volumes continued to contract. These negative trends filtered through to the labour market, resulting in another round of job losses.
  • At 49.3 in July, a tick below June’s reading of 49.4, the J.P.Morgan Global Manufacturing PMI™ signaled contraction for the third straight month and fell to its lowest level since October 2012.
  • Of the 30 nations for which July data were available, 19 had Manufacturing PMIs signalling downturns. China, Japan, Germany, South Korea, Taiwan, France, the UK, Italy and Brazil were among the countries seeing contractions.
  • Although the US and Canada saw expansions, their respective PMI levels (50.4 and 50.2) were only marginally above the neutral 50.0 mark.

Germany PMI Worst in 7 Years

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Markit reports Germany Manufacturing PMI at seven-year low as downturn gathers pace.

Conditions in Germany's manufacturing sector showed the greatest deterioration for seven years in July, according to the latest PMI® data from IHS Markit and BME, led by the steepest drop in new export orders since 2009. Output also fell at a faster pace, with manufacturers making more aggressive cuts to employment and purchasing activity.

Eurozone Manufacturing Worst Since 2012

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Markit reports Eurozone Manufacturing Sector Contracts at Fastest Rate Since End of 2012

Key Findings

▪ Final Eurozone Manufacturing PMI at 46.5 in July (Flash: 46.4, June Final: 47.6)

▪ Output and orders both down markedly as confidence hits lowest since December 2012

▪ Sharpest recorded reduction in employment for over six years

China PMI in Contraction

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Markit reports stable conditions with the PMI in Slight Contraction.

At 49.9 in July, the headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide asingle-figure snapshot of operating conditions in the manufacturing economy – posted only fractionally below the neutral 50.0 level to signal broadly stable conditions across China’s manufacturing sector. This followed a marginal deterioration in the health of the sector during June (PMI reading of 49.4).

US Flirting with Contraction

Earlier I commented on conditions in the US noting ISM and Markit PMI On Verge of Contraction.

My expectation is that the US would contract next month. See link for my reasons.

And this was before Trump threw a monkey wrench into the manufacturing setup with another extremely tariff hike on China. In the Lie of the Day, Trump Hikes China Tariffs By 10%, Says "Trade Talks On Track"

In response to Trump's move Bond Yields Crashed and Inversions Strengthened.

Don't Expect a Recession Warning

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If you think you are going to get a recession warning, you are probably wrong. For discussion, please see Manufacturing Recessions vs Real Recessions: How Much Lead Time Do You Expect?

Mike "Mish" Shedlock

Comments (9)
No. 1-5

The $64K question... well $64 million question after adjusting for cost of living changes... is there anyone who thinks the Fed messing around with privileged interest rates that only banks pay is going to have any effect on manufacturing? Anyone want to make an intelligent argument to that end?

Consumers weren't paying 2.25 before. How many people think consumers will pay 2% now?

China has over-promised how much growth they can achieve once the global consumer of last resort has credit problems. That has nothing to do with Trump.

US citizens need good paying jobs (typically that means manufacturing, not starbucks barista), but previous presidents have exported jobs abroad.

Now Trump, who's experience is in constructing ugly buildings, is trying to figure out how to encourage manufacturing (something he has zero experience with) -- under the guidance of Wilbur Ross who helped send jobs overseas. Dems are trying to argue the need to obey the law and defy the law at the same time, while demanding free sh!t paid for by taxpayers who work (not the rich).

Xi has to create lots of new jobs to create 6.5% growth, even though China is now the 2nd largest economy in a world growing ~2.5-3%. China's government requires that growth to maintain "social harmony" (aka avoid rebellions like Tianamen square or Hong Kong).

Historical tactics to address this clearly aren't working. And Trump Derangement Syndrome isn't either.

Tony Bennett
Tony Bennett

The plot thickens.

DXY ($US index) near 52 week high. Making tougher sledding for US exports. But real concern as $US climbs (and it will as US will trail in race to bottom) will be liquidity concerns abroad as $trillions in EM debt priced in $US. When things start blowing up offshore it will further strengthen $US ... leading to more detonations.

Vicious cycle on deck.


Mish the false signal in your graph. What was the date it turn back up? Did it happen after the tax cuts?


How we get to 4% growth:

Disclaimer: I don't work for First Trust, but the man has a point


Labeling the last 8 years as a "False Signal" is very similar terminology used to describe corrective waves in Elliott Wave technical analysis. I still agree a question mark is deserved because there could be one more little advance to challenge all-time highs.

Global Economics