The debt ceiling celebration was short-lived. Not 24 hours following the announcement, the markets are already focusing on the weakening economy (which should have always been the focus anyhow). And this issue is clearly global. The most alarming data is out of China and the rest of Asia where economies are clearly slowing according to the latest PMI reports. Here is a smattering of headlines from tradethenews.com:
– (CH) CHINA JUL HSBC MANUFACTURING PMI: 49.3 V 50.1 PRIOR (first reading below 50 since July 2010)
– (CH) CHINA JUL PMI MANUFACTURING: 50.7 V 50.2E (29-month low)
– China PMI Manufacturing fell to a 29-month low at 50.7 New orders were 51.5 v 50.8 prior and new export orders fell to a multi-month low at 50.4 v 50.5 prior. China HSBC Manufacturing PMI hit first contraction in a year, Taiwan HSBC Manufacturing PMI also fell to contraction territory at 46.1 and Russia manufacturing PMI also fell into contraction territory at 49.8, the first reading below 50 since Dec 2009. China State Information Center’s Fan: PBoC should not use monetary policy so frequently. China PBoC Statement: To continue to maintain prudent monetary policy; sees fundamentals as strong, expects domestic inflation remain strong. China National Radio reported that China has halted overseas yuan borrowing by local firms.
– (TT) TAIWAN JUL HSBC MANUFACTURING PMI: 46.1 V 49.9 PRIOR (Largest decline since Jan 2009)
– (RU) RUSSIA JUL MANUFACTURING PMI: 49.8 V 50.6 PRIOR (first sub-50 contraction since Dec 2009)
The EU and UK are slowing dramatically as well. David Cameron’s UK austerity package is working wonders for their economy. Thankfully though, they avoided the mythical bankruptcy that the USA just avoided. Now we get to follow their path into an economic hole because we’ve tricked ourselves into thinking that we are the next Greece:
– (EU) Euro Zone July Final PMI Manufacturing: 50.4 v 50.4e
– (UK) July PMI Manufacturing: 49.1 v 51.0e; Lowest since Jun 2009
The most recent ISM report here in the USA showed severe deterioration across the board. This is all consistent with an economy in a balance sheet recession that is losing the fiscal stimulus that propped it up for so many years. New orders contracted, employment fell substantially, prices fell substantially (it’s hyperinflation!) and backlog of orders also showed contraction. All in all, the 50.9 reading was far worse than estimates of 54.3. Econoday has the details:
“Hit by weakness in new orders, the Institute For Supply Management’s manufacturing index for July came in at a disappointing 50.9 vs what was an inflated 55.3 reading for June. The July index is still above 50 to indicate monthly expansion in business conditions but is now at the slowest rate so far of the recovery. New orders technically contracted in the month, coming in at 49.3 which however is only a little below break-even 50. Still, this is the first sub-50 reading since June 2009. Backlog orders contracted more deeply, down four points to 45.0 for the lowest reading since April 2009. Low levels of orders point to trouble for all other future readings including for, unfortunately, employment.
Employment, at 53.5, did expand in the month but is well down from 59.9 in June. This is the lowest level for employment since December 2009. Inventory, at 49.3, joined new orders in contraction during July. It was unusual strength in this reading that gave an unsustainable bounce to the composite index for June. Other readings include a slowing in production, a speeding up in deliveries which is a sign of weakness, and a slowing in input price inflation which, though boosting margins, is another sign of economic weakness.
Today’s report is in line with regional manufacturing reports that have also been showing very flat conditions. The manufacturing sector, which has been the leading sector of the economy, appears to be in a summer slowdown. Hopefully, extension of the nation’s debt ceiling will give a boost to August’s results. Stocks are weakening in reaction this report.”
This train wreck is becoming hard to watch….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.