by Michael Roberts
Back in January I reviewed the latest evidence on the state of the world’s major economies (see my post, World economy: where are we now?, 18 January 2012). I concluded then that “Capitalism is weak, but the patient is not having a relapse and going back into intensive care.”
That conclusion was based on reviewing the economic forecast from the
World Bank and analysing a couple of key high-frequency indicators of
economic activity in the US. The World Bank had forecast just 2.5% real
GDP growth for the world economy this year and even lower at 1.3% for
the mature capitalist economies of the OECD. Capitalism appears to be
recovering from the slump of 2008-9 but very sluggishly and with even a
small setback in 2011 compared with 2010.
Indeed, in a new paper, Barry Eichengreen and Kevin O’Rourke (A tale of two depressions, http://www.voxeu.org/index.php?q=node/7696) conclude “that,
while industrial production and trade recovered much more quickly than
during the Great Depression, both series now appear to be slowing down”.
Since the World Bank report, both the IMF and the EU Commission
have issued economic forecasts that conclude something similar – namely
that capitalism is still recovering but at a snail-like pace. This
gives the Great Recession the character more of a Long Depression,
similar to that experienced by capitalism in Europe and America in the
1880s and early 1890s. Recovery from a significant slump in 1873 was
quick but then further slumps ensued and economic growth remained
fragile right through the 1880s.
Having said that, again I must emphasise that capitalism is not yet
slipping back into economic recession or slump. I have found that the
best high-frequency guide to where US capitalism is going is to look at
the monthly Institute of Supply Management (ISM) survey of US
businesses, both in the manufacturing and services sectors, for the
evidence of orders, employment and costs. I have combined the ISM
indexes in the two sectors to produce a good indicator of the state of
the US economy. Last January, that combined index showed that the US
was in ‘low growth’ territory (defined as below trend average of about
3% a year) at the end of 2011, but not in recession. The latest ISM
figures were released this week and they confirm that position. Indeed,
the latest chart suggests that there has been a slight pick-up in US
economic activity in its capitalist sectors.
Another high-frequency measure of US economic activity is the ECRI’s
leading indicator, which compiles various measures of the economy into
one index. This also shows that the US economy is in a low-growth mode
(still well below pre-crisis levels of activity), but not heading back
into recession.
What about the rest of the capitalist world? Well, a quick look at
the last two months of purchasing managers data for Europe, Japan and
China suggest much the same. If a PM index is greater than 50, that is
supposed to show that an economy is still growing, with anything below
50 suggesting contraction. JP Morgan have a world index that scored
above that 50 in both January and February with the direction up (First
bar in red). Japan is scoring just on 50 (last bar in red). Only
Europe appears to be contracting (slightly) – last bar in blue. As for
China, it depends on which PM measure you want to follow, that of the
HSBC survey (first blue) or the official government survey (third red).
HSBC shows China to be contracting (but only just), while the official
index shows it still to expanding,if at a slower pace than this time
last year,
In sum, the capitalist world economy struggles on at a rate of growth
that is not enough to restore the jobs lost in the Great Recession and
not enough to encourage big business to kick in with sizeable new
investment, or for consumers to want to spend more. I have argued in
this blog before that the reason for this low-growth world is primarily
that the recovery in profitability in the major capitalist economies has
not been enough; and that these economies are still weighed down by
debt (or ‘dead capital’). This makes it impossible to have a ‘normal’
cyclical recovery for recession as in 1999-2 or 2001.
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