Global Recession Now Baked in the Cake

Global manufacturing suffers steepest contraction in over a decade as COVID-19 outbreak hits supply chains and demand according to Markit.

Six Key Points

1. Global Manufacturing PMI slumps to 47.2
2. Survey-record contraction in China; rest of the world stagnates on average
3. Global trade falls at fastest pace since April 2009
4. Global Manufacturing Decline Steepest Since 2009
5. Manufacturing employment declined for the third successive month in February, with the rate of job losses the fastest since August 2009.
6. Purchasing activity declined to the greatest extent in the series history (which started in October 2009).
   The J.P.Morgan Global Manufacturing PMI – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – fell to 47.2 in February, down from 50.4 in January and to its lowest level since May 2009. Manufacturing production and new orders registered their sharpest declines since April 2009.
   The downturns in both were quickest in China, where output and new business fell at survey-record rates. Of the 31 nations for which February data were available, 15 registered a contraction of output, including China, Japan, Germany, France, Italy, Taiwan, South Korea and Australia. The US, the UK, Canada, Mexico, India and Brazil were some of the larger countries to experience output growth.
   The trend in international trade flows weakened noticeably during February. The rate of contraction was the steepest since 2009, as the outbreak of COVID-19 directly impacted supply from larger exporting nations such as China and South Korea and also had knock-on effects for demand in a number of nations. Declines were also registered in the US, the euro area, Japan, the UK, Taiwan, Australia and Brazil. The outbreak of COVID-19 had a marked impact on supply-chains during February. Average vendor lead times lengthened to the greatest extent in almost nine years (since April 2011).

Global Manufacturing Decline Steepest Since 2009

PMI By Goods Sector

Global Recession Baked in the Cake

A global recession is baked in the cake.

The definition of “global recession” depends on which economist you talk with.

Informally, past IMF chief economists have called global growth lower than either 3% or 2.5% — depending on who was the chief economist — a recession. But that didn’t pass muster with Olivier Blanchard, the IMF’s current chief economist, who on Oct. 8, 2008 said “it is not useful to use the word ‘recession’ when the world is growing at 3%.”

By that definition, a recession has started.

However, I expect much worse. Outright contraction is coming up.

What’s Happening

1. Feb 19: Fed Minutes Highlight Coronavirus Concerns and Uncertainty 8 Times
2. Feb 24: Bond Yields Crash and Gold Soars on Pandemic Threat
3. Feb 25: CDC Admits Spread of Coronavirus in the US Appears Inevitable
4. Feb 25: Lie of the Day: This is Not a Pandemic
5. Feb 25: Nearly 50% Odds of “At Least” 3 Rate Cuts by December
6. Feb 26: Trump says We are “Very, Very Ready for the Coronavirus, for Anything”
7. Feb 27: Useless Act: California Monitors 8,400 People for Coronavirus; 33 Test Positive
8. Feb 27: Containment Fails: Coronavirus Tweets of the Day
9. Feb 27: Tweets of the Day: Iran’s VP Infected, Japan Closes All Schools
10. Feb 28: 5 Mistakes by the CDC and FDA Set Back Virus Testing
11. Feb 29: China PMI Contracts to the Weakest on Record
12. March 1: Powell Floats “Fed Will Act As Appropriate” Rate Cut Message
13. March 1: State of Emergency in Alameda County
14. March 1: Florida Governor Declares State of Emergency

Mike “Mish” Shedlock