by Michael Roberts
There has been much talk of recovery picking up pace in the advanced
capitalist economies but slowing down in the emerging economies,
particularly China. To get a more timely feel on the level of activity
in the world economy, I use the purchasing manager’s indexes (PMIs).
These are monthly surveys compiled from companies in various countries
on the state of production, employment, prices and orders, indexed up
into a country by country figure. The PMIs for June look like this.
These are PMIs for combined manufacturing and services sectors.
Anything over 50 implies that the economy is expanding. In June, the
only region still contracting was the Eurozone – still deep in
recession. But note that the Eurozone PMI is up from the figure in
April. So it would appear that the the rate of the Eurozone’s
contraction is slowing – a small mercy. Everywhere else, there is
expansion. However, the PMI data confirm that China and thus the World
as a whole is expanding but at a slower rate than in April. And that
also applies to the US. The US economy is still growing but according
to the PMI at a slightly slower pace than in April.
The interesting development is that there has been a pick-up in the
pace of expansion since April in the UK and Japan. This would seem to
confirm that the fear of a ‘triple-dip’ or ‘double-dip’ recession in the
UK was unfounded. Indeed, now all the economic forecasters are
raising their guesses on UK expansion, including the IMF, from their
dismal forecasts of a few months ago. But just as the forecasters
overdid their view on the UK to the downside, they are probably now
swinging to be over-optimistic on the upside. At best, UK GDP is going
to grow by just 1% in real terms this year and even less per head of
And the world economy as a whole is slowing down in its expansion.
driven by slower growth in China and the other major emerging capitalist
economies. Just as the very weak recovery in the advanced capitalist
economies dragged down overall global growth between 2009-12, now it
seems that the supposedly fast-growing emerging economies will dampen
the impact of any relatively faster growth in the advanced economies.
In particular, the Chinese economy slowed to 7.7% a year in Q1-2012 from
7.9% at the end of 2012. It is going to be even slower in the quarter
just gone and through the rest of the year. Of course, a real growth
rate of 7%-plus is huge compared to the rest of the world, but it is not
enough to absorb the flow of new labour into Chinese industry and
services. Elsewhere, Brazil, India and other major emerging economies
are also slowing.
But it is the US economy that remains key to the health of the world
capitalist economy – it remains the largest, the biggest trader and the
dominant financial force. And if we look at the US economy through the
eyes of its combined manufacturing and services sector PMI, it remains
stuck in a low-growth path, where it has been for almost the whole time
since the end of the Great Recession. If anything, the trend is for
even slower growth going forward.
The more frequent but less reliable weekly indicator from ECRI tells
the same story: the US has not achieved the usual economic recovery that
comes after a slump.
Much has been made of the latest US jobs figures. Employment rose
195,000 in June and after upward revisions for previous months, it seems
that average employment growth is now 200,000 a month, higher than the
less than 150,000 in the first quarter of this year. But that increase
has not made much of a dent in the unemployment rate because more
Americans out of work have attempted to look for jobs after having given
up for a while. Indeed, the measure of long-term unemployment rose in
June, from 13.8% to 14.3%—the highest level since February. This
suggests that new jobs are being snapped up by new claimants while those
who lost their jobs in the Great Recession remain on the scrap heap,
with their benefits being cut or expiring.
Moreover, just as in the UK, most of these new vacancies are not
full-time permanent jobs at good wages, but part-time, low grade work.
The number of people working part-time rose by 322,000 to 8.2 million.
These people aren’t working part-time because they want to—it’s because
they can’t find full-time work. And of the jobs created in June, 60%
were in low-paying positions: 75,000 jobs were created in the leisure
and hospitality sector and 37,000 jobs were created in the retail
sector. This will eventually translate into low or falling productivity
in the US economy, just as it has done in the UK. US corporations are
taking advantage of the huge reserve army of labour still out there to
introduce part-time and temporary jobs to save labour costs – reduced
benefits, no holiday or sick pay etc.
Back in the UK, amid the new hope that the economy is about to burst
forward at last, the latest data on UK corporate profitability were
released with substantial revisions to the historic data. In Q1-2013,
non-financial corporations’ net return on capital stock, a pretty good
measure of profitability, if not a la Marx, was 12%, slightly
higher than the level of the last four years since the trough of the
slump. Manufacturing companies continued to achieve a much lower return
at 8% on average. So UK corporate profitability has improved a little
from the slump, but it is still 20% below where it was at its peak in
early 2008 and that was below its 1997 peak.
As I have shown in previous posts, this is the story of profitability
in most capitalist economies, including the emerging economies. A new
slump may be necessary to ‘cleanse’ the capitalist economy of too much
debt and too many inefficient ‘zombie’ companies. As the leading global
bond investment manager, PIMCO put it this week: “Statistically
speaking, the global economy experiences a recession every six years or
so, and the frequency of global recessions tends to increase when global
indebtedness is high and falling as opposed to when indebtedness is low
and rising. Given that the last global recession was four years ago,
and also given that the global economy is significantly more indebted
today than it was four years ago, we believe there is now a greater than
60% probability that we will experience another global recession in the
next three to five years.”
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