Friday, June 1, 2012

Global Capitalist crisis: A weak world

by Michael Roberts

The world economy continues to struggle. In the last week alone, the data on various parts show very weak growth and in some areas, signs of slippage into recession. In its latest report, the OECD said that the global economy “is gradually gaining momentum”, but admitted that “the recovery is fragile, extremely uneven across different regions and could be derailed by the crisis in the euro area”.

It now forecasts that the OECD economies as a whole will slow from an annual growth rate of 1.8% in 2011 to 1.6% in 2012, but expects a small recovery to 2.2% in 2013. Within that overall figure, the US is expected to grow by 2.4% in 2012 rising to 2.6% in 2013, Japan by 2% in 2012 and 1.5% in 2013, while the Euro area will shrink by 0.1% this year, before recovering a little to grow by just 0.9% in 2013. The UK is expected to grow by just 0.5% this year and 1.9% next year. Within Europe, the economies of Spain, Italy, Greece and Portugal will continue to contract over the next 18 months. Of the distressed euro area states, only Ireland is expected to grow.

On the same day as the OECD report, the International Labor Organisation (ILO) reported that there will be nearly 75 million unemployed youth in 2012, which accounts for 12.7% 0f the global youth labor force aged 15 to 24, an increase of nearly 4 million since 2007. That forecast is up from last year’s estimate of 12.6%.

The OECD confirms my view that world capitalism is having the weakest recovery from a slump since the 1930s. In the UK’s case, it is weakest since 1918. So are we heading back into a new slump this year? Well, the second stab at measuring US GDP for the first quarter of this year came out this week. The statisticians revised downwards their previous estimate of the US annualised growth rate to 1.9% from the previous guess of 2.2%. The US economy is now growing exactly at 2% year-on-year in the first three months of 2o12. So there is still growth but it is weak.

And it is certainly too weak to get America’s unemployed back to work any time soon. The US jobs data just out reinforced that view. Net new jobs in May rose only 69,000 compared with a forecast of 150,000, the minimum needed to meet the increase in the work force. As a result, the unemployment rate, which had been falling ever so slowly, turned back up to 8.2% from 8.1% previously. And previous figures for March and April were revised down. Even more worrying, the so-called underemployment rate, which includes part-time workers who are looking for full-time work as well as those who have given up looking for a job, went back up from 14.5% to 14.8%. The number of long-term unemployed Americans also rose: the proportion of unemployed who have been out of work for 27 weeks or more is now at 42.8%. Elsewhere, in the Eurozone, it’s even worse – there are now 17.1 million unemployed, with a rate of 11%, the highest since 1995.

Followers of my blog know that I consider the key indicator for the health of capitalism is the movement in profits and the profit rate. Data for corporate profits in the US were also released this week. It is still not possible to get a clear handle on the US rate of profit using Marxist categories like surplus value and net fixed capital stock. We don’t have all the data for 2011 yet. However, we can use US corporate profits as a share of GDP as a crude proxy measure. This measure has been at historic highs, as corporate profits recovered very quickly once the Great Recession reached its bottom in mid-2009, while national output did not recover so strongly. So corporations have captured a lion’s share of the increased value since then.

However, both the rates of growth in corporate profits (the mass of profits) and the rate of growth in the share of profits in GDP (this crude measure of profitability) are now slowing. The mass of corporate profits rose 6.5% yoy in Q1 2012, down from 8.8% this time last year and a staggering 46.7% in the recovery period in Q1 2010. The rate of growth in the mass of profits is now below the average rate of the last seven years of 8.2%. The growth in the share of profits in GDP has also slowed to just 2.4% yoy in Q1 2012, half the average rate of growth in the last seven years. Indeed, profitability on this measure has now been flat for three quarters. US corporate profitability seems to have peaked.

These profits indicators suggest that, even in the US economy, which is doing relatively better than Europe or Japan, economic growth will remain weak and may even slow.

That brings me to my usual high-frequency indicators: the monthly purchasing managers indexes (PMI) from the major economies. The US manufacturing index came out today. It shows that economic activity weakened, although it is still in the low-growth range rather recession.
As for the other economies, they are barely above recession levels now. China’s two PMIs in May both fell – the official one to 50.1 (a score of 50 means no growth) and the HSBC one to 48.4 (implying further contraction). The Eurozone PMI is now at 46.5, a seven-month low.

The long depression continues and even intensifies.

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