by Michael Roberts
February’s data for gauging the strength of the world economy is now
available. Readers of this blog will know that I use certain monthly
indicators to get a ‘high frequency’ picture of the world economy. I
use the so-called Purchasing Managers Indexes (PMIs), which are
basically surveys drawn from company managers about their corporate
purchases in each month – things like new orders, employment, wages,
prices and production.
Starting with the US, I have compiled a composite index of the PMI
for manufacturing companies with the PMI for services companies. This
is how it looks.
As you can see, the US economy remains in a low-growth path with some
signs of a pick-up. The US is certainly nowhere near a new recession.
However, the impact of the increased taxes being imposed after Congress
agreed a hike last January and the reductions in government spending
coming from the so-called ‘sequester’ are likely to hit growth over the
year by as much 1% pt of real GDP. We’ll see what that does to the
An even more frequent indicator of US economic activity is the weekly
ECRI that looks at a number of high-frequency measures including stock
market prices and interest rates. This also shows the US economy
comfortably moving along a low growth path, but still not near boom
And just yesterday, we got the monthly jobs figures for the US. The
headline data looked stronger. There was an increase in overall US
employment of 236,000 and the unemployment rate fell from 7.9% to 7.7%.
The accompanying survey of US households about their employment found
that jobs had risen 170,000. But here is the rub. This increase was
actually in part-time, low-paid jobs which were up 446,000, while
full-time jobs fell 276,000. Just under 300,000 left the labour force
(i.e. they were no longer looking for a job) and this explains the fall
in the unemployment rate. Long-term
unemployment (27 weeks or more) rose by 89,000, the first increase
since October. And when you compare the rate of recovery in employment
since the end of the Great Recession, this is the weakest post-war
turnaround of all employment recoveries. After over five years,
employment is still 2% below its pre-slump peak, and at current rates of
net new jobs, it could take another 18 months to get back to that peak.
Both the employment-to-population ratio and the labour force
participation rate are much lower than they ought to be. As one
commentator put it, “it’s important to ensure that the unemployed
get jobs. But in many ways it’s even more important to try to create
jobs for people who simply aren’t working, rather than just for the
people who are actively looking for work.” There are 89.3 million
Americans who are not in the labour force, of whom 6.8 million currently
want a job. The economy ought to be able to find good, rewarding jobs
not only for the 6.8 million, but for a large chunk of the other 82.5
million as well. And that is not happening.
What about the rest of the world? Well, the PMI for the world as a
whole is still above 50, the point at which an economy rises. It is
strongly in the US and China, as we know. Even the UK is expanding on
the PMI measure. So a ‘triple-dip’ recession for the UK is not on the
cards based on the February PMI. But the Eurozone and Japan economies
remain well in recession mode.
The overall Eurozone figure came as Ireland, Spain, Italy and even
Germany saw their individual country PMIs worsen between the first and
second months of the new year. Italy saw its all-sector PMI slide from
45.2 to 44.2, deep below 50, Spain’s PMI dipped from 46.5 to 45.3 and
France’s only managed to inch up, from 42.7 to 43.1. By contrast, German
business activity was on the rise, even though the PMI index fell from
January’s 54.4 to 53.3 in February.
The world economy crawls along, with the US and China leading the way and Japan and Europe struggling along behind.
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