Global Export New Orders Fall 16 Straight Months Led by Goods

PMI surveys compiled by S&P Global Market Intelligence indicated a sixteenth monthly fall in export orders for goods and services at the end of the second quarter.

Global Trade Falls at Fastest Rate for Five Months

S&P reports Global Trade Falls at Fastest Rate for Five Months

The divergence in performance between goods and services exports persisted in June, albeit narrowing on the near-ten-year record gap seen in May. Although manufacturing new export orders fell at the steepest rate for six months, marking a sixteenth successive monthly contraction, service sector exports rose for a fourth consecutive month. However, the rate of growth of services exports cooled from May’s record rise, albeit remaining the second strongest seen since comparable services data were first available in 2014.

The slump in goods trade broadened out by sector in June. A downturn that had been principally characterised earlier in the year with the reduced exportation of intermediate goods (inputs supplied to other firms) has increasingly spread to investment goods, such as machinery and equipment, and consumer goods. That said, the steepest downturn in goods exports in June continued to be seen for ‘raw materials’ such as paper & timber products, basic materials, basic metal goods and construction materials amid an ongoing inventory drawdown of inputs by producers, their suppliers and their customers.

The downturn in global machinery exports is particularly concerning as such a decline typically signals reduced investment spending. The reduction in exports of consumer goods meanwhile points to reduced household demand, though some of this reduction merely reflects a post-pandemic diversion of consumer spend away from goods towards services, facilitated by reduced travel restrictions in 2023 compared to the prior three years.

A spring surge in travel and tourism exports, the former buoyed by corporate as well as leisure trips, has helped drive worldwide service sector exports higher at a survey record pace over the second quarter as a whole, though June saw some evidence of this upturn losing some momentum. This slowing is likely attributable to the lagged impact of interest rate hikes and the increased global cost of living, according to anecdotal evidence from PMI survey respondents. However, global trade in professional and commercial services and financial services continues to fare especially well.

By Country

• US exports fell for a thirteenth successive month with trade falling sharply albeit with the rate of decline moderating slightly compared to May.
• Japan’s exportsfell at the sharpest rate for just over a year.
• The eurozone’s export decline hit a seven-month high. The eurozone reported the sharpest overall export decline of the major developed economies.
• The UK reported its first drop in orders since January.
• In most cases, the declines were led by falling manufacturing trade accompanied by weakening services growth (and, in the case of the eurozone, a decline in services exports). The exception was the UK, where services exports ticked higher.

Divergences

The global manufacturing vs global services divergence will not last forever. Nor will the divergence between the US and the rest of the world.

China did not decouple from the global economy in 2008 and the US will not do so in 2023.

Largest Discrepancy Between US GDP and GDI in 20 Years

Within the US, we have the Largest Discrepancy Between GDP and GDI in 20 Years

Since Gross Domestic Product (GDP) and Gross Domestic Income (GDI) are two measures of the same thing, the GDP/GDI divergence by definition cannot last forever.