US, Germany, Japan in Manufacturing Recessions: Full-Blown Recessions Coming Up
84 Month Low in Germany Manufacturing PMI
MarketWatch reports German flash manufacturing PMI slumps to seven-year low but let's go straight to the source for more detailed information.
The Markit Germany PMI shows an 84-Month Low in Germany's Manufacturing PMI.
▪ Flash Germany PMI Composite Output Index at 51.4 (Jun: 52.6). 4-month low.
▪ Flash Germany Services PMI Activity Index at 55.4 (Jun: 55.8). 2-month low.
▪ Flash Germany Manufacturing PMI at 43.1(Jun: 45.0). 84-month low.
▪ Flash Germany Manufacturing Output Index at 44.1 (Jun: 46.7). 4-month low.
Germany Composite Notes
- Growth of German business activity slowed in July as the country’s manufacturers recorded their worst monthly performance in seven years, according to the latest flash PMI® data from IHS Markit. The IHS Markit Flash Germany Composite Output Index – which is based on approximately 85% of usual monthly replies – fell to 51.4 in July. This was down from 52.6 in June and its joint-lowest reading in over six years.
- Job creation meanwhile slowed to its weakest since April 2015 as firms reported an accelerated rate of reduction in backlogs and lower confidence towards future output.
- Manufacturing output fell sharply in July, registering its steepest drop since March and one of the most marked contractions since 2009.
Eurozone Manufacturing PMI at 79-Month Low
Weakness in Germany has spilled over into the entire Eurozone according to the IHS Markit Flash Eurozone PMI®
▪ Flash Eurozone PMI Composite Output Index at 51.5 (52.2 in June). 3-month low.
▪ Flash Eurozone Services PMI Activity Index at 53.3 (53.6 in June). 2-month low.
▪ Flash Eurozone Manufacturing PMI Output Index at 47.0 (48.5 in June). 75-month low.
▪ Flash Eurozone Manufacturing PMI at 46.4 (47.6 in June). 79-month low.
Eurozone Composite Notes
- Eurozone economic growth edged lower in July as a deepening manufacturing downturn was accompanied by a slight moderation in service sector growth. Overall inflows of new work almost stagnated and business sentiment fell to its lowest since late-2014, causing companies to take an increasingly cautious approach to hiring. Selling prices meanwhile came under pressure amid tough competition and weak demand.
- Having risen in the prior two months, the IHS Markit Eurozone Composite PMI® fell to 51.5 in July according to the ‘flash’ estimate, down from 52.2 in June to register the weakest monthly expansion of output for three months. Over the past six years, only four months have seen lower PMI readings.
- The modest overall expansion masked a widening divergence between the manufacturing and service sectors to the largest since April 2009. While the service sector continued to record robust growth, albeit easing slightly compared to June, the manufacturing sector reported the steepest drop in production since April 2013.
Markit Chief Economist Chris Williamson Comments
- “The eurozone economy relapsed in July, with the PMI giving up the gains seen in May and June to signal one of the weakest expansions seen over the past six years. The pace of GDP growth looks set to weaken from the 0.2% rate indicated for the second quarter closer to 0.1% in the third quarter.
- “The manufacturing sector has become an increasing cause for concern. Geopolitical worries, Brexit, growing trade frictions and the deteriorating performance of the autos sector in particular has pushed manufacturing into a deeper downturn with the survey indicative of the goods-producing sector contracting at a quarterly rate of approximately 1%.
- “The more domestically-focused service sector remained the main driver of expansion, though even here the rate of growth has slowed, likely in part due to signs of weaker labour market trends. Hiring was close to a three-year low in July.
- “Germany has been especially hard hit by the manufacturing and autos sector downturns, and is at risk of GDP contracting marginally in the third quarter. France appears more robust, albeit with growth likely to ease slightly from 0.3% to 0.25% in the third quarter.
Unwilling to Say Recession
Williamson seems unwilling to say "recession".
Estimating GDP to weaken from 0.2% to 0.1% in the Eurozone is splitting hairs then doing it again.
Japan Manufacturing PMI in Contraction
Markit reports Output Growth Accelerates in Japan but you probably know the score.
The "acceleration" in the PMI was to 51.2 from 50.8, but manufacturing remained in contraction at 49.6, up from 49.3.
US Flash Manufacturing PMI at 118-Month Low
As with the Eurozone and Japan, a strong service sector held up an otherwise Abysmal US Manufacturing PMI.
- Flash U.S. Composite Output Index at 51.6 (51.5 in June). 3-month high.
- Flash U.S. Services Business Activity Index at 52.2 (51.5 in June). 3-month high.
- Flash U.S. Manufacturing PMI at 50.0 (50.6 in June). 118-month low.
- Flash U.S. Manufacturing Output Index at 48.9 (51.2 in June). 119-month low.
Markit Chief Economist Chris Williamson Comments
- “The survey data indicated that the economy started the third quarter on a disappointingly soft footing. The PMIs for manufacturing and services collectively point to annualized GDP growth of just 1.6%, up only very marginally from a lacklustre 1.5% indicated by the survey in the second quarter.
- “The overall picture of modest growth conceals a two-speed economy, with steady service sector growth masking a deepening downturn in the manufacturing sector. The survey’s gauge of factory production has slumped to its lowest since August 2009, and indicates that manufacturing output is falling at a quarterly rate of over 1%, led by an increasing rate of loss of export sales.
- “The survey’s employment gauge has meanwhile fallen to a level consistent with 130,000 jobs being added in July, down from an average of 200,000, in the first quarter and 150,000 in the second quarter, as firm became increasingly cautious in relation to hiring. Manufacturers are shedding workers at the fastest rate since 2009 and service sector job creation is now down to its lowest since April 2017.
- “Future prospects have also darkened to the gloomiest since comparable data were first available in 2012, suggesting that companies may look to tighten their belts further in coming months, dampening spending, investment and jobs growth. Geopolitical worries, trade wars and increasingly widespread expectations of slower economic growth at home and internationally have all pulled business optimism lower.”
The slowdown in trade is on the verge of spilling over into the entire global economy.
Services will not be immune. Nor will the US be immune from from a slowdown in China and the Eurozone.
Add Brexit into the mix and the EU will soon be an economic basket case led by Germany.
When manufacturing recessions take hold, economic recessions typically follow. And we have bad manufacturing recessions across the board.
Mike "Mish" Shedlock