U.S. and World Economies–Slow, Slower, Slowest
There is no good news today for the world’s economy, including America. In the United States, the monthly survey of business by The Institute for Supply Management showed that manufacturing activity fell to 36.2 from October’s 38.9. A figure below 50 indicates the sector is contracting. The Associated Press reports: “The November reading is the lowest since May 1982. . ., when the economy was in the midst of a painful recession. Economists said the report indicates that the economy is likely in a steep recession and times will remain tough for manufacturing companies in the coming months.”
This kind of drop in manufacturing is also shown in American automobile sales, which have put the three domestic automobile manufacturers at the doorway of bankruptcy. Of course, a slowdown of the auto industry also spills over into steel and many other members of the manufacturing sector.
Below is a video presentation by Mark Vitner on Bloomberg TV about the U.S. ISM index
Construction spending, which also is a big buyer of building materials and other manufactured products also fell 1.2% in October.
Shifting our view from America to the rest of the world, the news is as bad or even worse. For car sales, alone, here are some of the monthly or year over year reports:
Italy’s Fiat reports a 20% drop in sales in November.
Spain’s auto industry reports a 50% fall in the last seven months.
France’s auto sales are down 14% year over year.
Japan is down 18.2% for the same period.
Sweden is down 36% in November.
Other international manufacturing data reported through Bloomberg are equally discouraging:
- Manufacturing in the 15 nations sharing the euro contracted by the most on record in November. A purchasing managers’ index dropped to 35.6 from 41.1 in October, remaining below the expansion threshold for a sixth month. That’s the lowest since Markit Economics began the poll in 1998.
- Manufacturing in China, the fastest- growing major economy, fell by the most on record in November, the China Federation of Logistics and Purchasing reported today. Its purchasing managers’ index fell to a seasonally adjusted 38.8 from 44.6 in October.
- The yuan fell the most since a fixed exchange rate ended in 2005, sliding 0.7 percent to close at 6.8848 per dollar. Economists at Citigroup Inc. said “more immediate policy help” was now needed on top of last month’s $586 billion stimulus package and biggest interest-rate cut in 11 years.
- In Russia, VTB Bank Europe said its measure of purchasing managers fell for a fourth month in November to 39.8, below the level recorded in 1998 when the government devalued the ruble and defaulted on $40 billion of debt.
- Indexes for Poland, Hungary, Sweden and the Czech Republic also showed some of the steepest-ever declines as recession struck their main export markets. South African manufacturing shrank at the fastest pace in at least nine years, pushing Investec Asset Management’s Purchasing Managers Index to 39.5 last month from 46.2 in October.
Here we have something new in the making: the first truly world economic recession in the memory of most people alive today. There was a similar occurrence in the 1930s, but that is not a memory for most people.
What is even newer is the fact that all the economies mentioned, and many others not mentioned, are embarking on an almost coordinate attempt to stimulate their economies by the two economic policies available to nations today: monetary policy of lowering interest rates (EEC, U.K., America, China, to name a few) and a large fiscal stimulus program of massive deficit spending to shore up consumer welfare and build infrastructure.
The G-20 meeting in Washington last month provided the first hint of a coordinated approach to the problem. (See my Seeking Alpha article on this meeting here.)
To my knowledge, there has never been such an approach, and this constitutes the good news. Economic modeling suggest that a coordinated approach to fiscal stimulus is more effective than individual country attempts. If each country engages in its own fiscal stimulus, then it will be effective, generally, but some of the effectiveness will be lost to exports. But, if all the trading partners engage at the same time, the “leakage” is offset. By the second half of 2009 we will know if this approach works or not.
For an up-date on the depth of the recession in the U.S., see: 34-Year High Job Loss
