December’s JPMorgan Global PMI Shows Just How Far The Infection Has Spread

OK, so now here’s the chart you really need to see (below). The JPMorgan Global Manufacturing PMI hit 33.2 in December, a series record. More to the point you can get a comparison between what is happening now and the 2001 “recession lite” with only a swift glance, and, of course, the 2009 long recession is only just getting started.

Now let’s stick it alongside the one Paul Krugman put up last week of the US Great Depression:

Now, arguably, what we can see here is that the current collapse in industrial activity is starting to get near the US historic one in terms of proportions, but we still aren’t quite there yet. What we could note that JP Morgan in their monthly report suggest that the present rates of output are equivalent to an annual fall of between 12% and 15%. Really to compare with the fall in the US we need to get up into the 20% region, but remember the global index is based on an average for 26 countries, and some of these are much worse than others (Japan, Spain, possibly Russia) and will already be around the 20% annual contraction rate in December. The point is also that the situation is still deteriorating, so hang on a bit, since it is not at all excluded that we will hit a 20% annualised contraction rate for the whole aggregate 26 sometime during the first quarter.

“The second half of 2008 has been dreadful for global manufacturing and the sector enters the new year mired in its deepest recession for decades. Manufacturing will therefore continue to weigh on world GDP figures, with December PMI data consistent with a drop in global IP of around 12%-15% saar as indexes for output, new orders and employment slumped to record lows.”

“The weakest performance was registered by Japan, whose output and new orders indexes fell to levels unprecedented in the histories of any of the national manufacturing surveys included in the global manufacturing PMI.”

“Employment fell for the fifth successive month in December, and to the greatest extent in survey history. All of the national manufacturing sectors recorded a drop in staffing levels, most at series-record rates including all of the Eurozone nations, China and the UK. The sharpest falls in employment were signalled for Denmark, Spain, the US, Russia and the UK.”

And watch out for the deflation backslap:

“The Global Manufacturing Input Prices Index posted 31.3, its lowest ever reading. The rate of deflation was especially marked in the US, were purchase prices fell to the greatest extent since June 1949. Rates of decrease in costs hit series records in the Eurozone, Russia, Switzerland, the Czech Republic and Denmark.”

And for those of you who are still sceptical that any of this has any validity, here’s a PMI/GDP comparison chart for Japan – GDP rates to the left, diffusion index PMI readings to the right (click over image if you can’t view too well). Not perfect, but not a bad guide I would say, if you like your football live, that is.

So never mind the depth, what about the duration? Well that is where I think that all of this will differ from what happened back then. As you can see in the US Great Depression Chart the 20% annual decrease went on for several years. At the present time I think there is no reason to assume that this will happen, ie that we will keep getting massive year on year contractions (in some cases maybe, Latvia perhaps?????), but activity does look set to fall to quite a low level, and there is no strong reason at present for believing it will simply bounce back up again. More than likely we will simply trawl the bottom, at least for some months, and who knows, maybe a couple of years.

Well that’s it for the big picture stuff, but I have actually been pretty hard at it all day down at the individual country level, so there is plenty more detail to come. In the next post.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

4 thoughts on “December’s JPMorgan Global PMI Shows Just How Far The Infection Has Spread

  1. As before, I’m not certain that looking exclusively at industrial production is quite valid, for industry is a smallerprotion of he global economy than it was 70 years ago. Or at least I think it is. Worth weighting the numbers to reflect the sectoral shift at least, no?

  2. Hello Tim,

    “As before, I’m not certain that looking exclusively at industrial production is quite valid, for industry is a smallerprotion of he global economy than it was 70 years ago. Or at least I think it is. Worth weighting the numbers to reflect the sectoral shift at least, no?”

    I would certainly not disagree with the last point. I mean I would like to see someone do it. The thing is, as a one man band – rather than a bank research department, or a think tank etc – there are limitations on what you can do, so you have to go for the jugular as it were.

    Really, since the economies I am arguing are likely to be the worst affected in what we can at least call “the long recession” (see my latest post on Russia) – Japan, China, Russia, Germany, Ukraine and Spain – all have quite a significant level of industry dependence (except Spain, but then Spanish services are now neck and necking it with Spanish industry), then I don’t think manufacturing is such a bad proxy for what I want to look at, which really is the size of the hole that has just been blown in the side of the ship.

    I will be explaining more of the story as I see it soon, but undoubtedly industry feeds through to services via employment, and this is the aspect we should now be looking closely at, since if all these industries shed a lot of workers in Q1 2009, then we will get another round of industrial contraction on the back of it, and that is when things will get really tricky if they haven’t managed to “un-seize” the credit spiggots by then.

    The thing is Tim, since everyone will need to reduce CA deficits and export now (but who will be buying, aha) industry is about to become more important than it has been in recent times (as is agriculture if food prices continue to trend up after the recovery) as areas like financial services and construction are pruned back somewhat.

    Basically, I am relying on an old macro economists prejudice about the structural importance of industrial activity when all the froth is stripped away from the rest. It’s a hunch. I’m playing it, and the proof of the pudding will be in the eating, although up to now I ain’t doing too bad, if I may say so, since the German and Japanese economies folded right on cue as far as my forecasts went, Spain has turned out to be a nightmare, and the focus of the current global financial crisis has moved to the East of Europe, just as I was anticipating on all those Eastern Europe blogs.

    And at the end of the day, if you look at the manufacturing PMI/GDP for Japan, as I say in the post, it ain’t half bad, mom.

    But if you still aren’t convinced, well we will have the JP Morgan Global Services and Composites out next week, though I personally haven’t the time to go drilling them down to country level as I am willing to do for manufacturing, I’ll leave that to someone with a different hunch.

  3. Pingback: Russia’s GDP Indicator Shows Marked Contraction | afem | A Few Euros More | More European Opinion

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